THE  REAL  WEALTH  OF  NATIONS 


THE  REAL  WEALTH 
OF  NATIONS 

OR 

A  NEW  CIVILIZATION 

AND  ITS  ECONOMIC  FOUNDATIONS 


BY 


JOHN   S.  HECHT 

n 

FELLOW  OF  THE   ROYAL   ECONOMIC  SOCIETY 


YONKERS-ON-HUDSON,  NEW  YORK 
WORLD        BOOK       COMPANY 

1921 


WORLD  BOOK  COMPANY 


THE  HOUSE  OF  APPLIED  KNOWLEDGE 


Established,  1905,  by  Caspar  W.  Hodgson 

YONKERS-ON-HUDSON,   NEW  YORK 

2126     PRAIRIE    AVENUE,    CHICAGO 


All  rights  reserved 


-7 


TO  ALL  THOSE  WHO 
IN  A  RIGHT  CAUSE  DIED 
FOR  THEIR  COUNTRY 


577695 


STUPIDITY   STREET 

/  saw  with  open  eyes 
Singing  birds  sweet 
Sold  in  the  shops 
For  the  people  to  eat. 
Sold  in  the  shops  of 
Stupidity  Street. 

I  saw  in  vision 
The  worm  in  the  wheat, 
And  in  the  shops  nothing 
For  people  to  eat ; 
Nothing  for  sale  in 
Stupidity  Street. 

RALPH    HODGSON 


PREFACE 

A  SCIENCE   is  governed  by  immutable  laws,  indepen- 
dent  of  man's  opinion,  in  war  or   peace,   in   rain    or 
shine,    among    savages    or   civilized    people,    and    the 
breakage  of  such   natural  laws  must  entail  retrogression   or 
degradation. 

The  death  and  torture  of  millions  in  the  War  demand  the 
truth,  for  had  the  permanency  of  nations,  their  real  wealth 
and  inviolate  and  clearly-defined  rights,  been  recognized,  the 
spoliation  of  one  by  another  would  have  been  impossible, 
and  even  a  people  trained  to  robbery  would  not  have  dared 
to  flout  civilization  and  humanity. 

The  earth  is  a  beautiful  place,  but  what  a  mass  of  so-called 
civilized  men  lead  unbeautiful  lives  !  While  the  animals  have 
less  capacity  for  enjoyment,  at  least  they  do  not  worsen  the 
conditions  provided  for  them  by  a  bountiful  Nature,  whereas 
it  is  frequently  urged  as  an  argument  against  reform  that 
man  is  so  satisfied  with  degrading  surroundings  which  are  not 
those  of  Nature  that  he  would  have  to  be  moved  from  them 
by  force.  Can  man  after  all  be  so  wicked  or  so  far  below 
the  animals  in  perception  that,  with  his  priceless  gift  of 
reason,  he  should  build  himself  horrible  habitations  and  carry 
ugliness  into  the  country  rather  than  bring  the  beauty  of 
the  latter  into  the  towns  ?  If  civilization  and  industrialism 
necessitate  their  present  setting,  they  must  be  a  curse  and 
not  a  blessing. 

Both  history  and  reason  prove  that  all  developments  for 
the  well-being  of  mankind  have  come  from  above  and  not 
from  below,  through  pressure  of  the  wise  upon  the  foolish, 
whence  so  long  as  there  remain  one  imperfect  man  in  this 

vii 


THE  REAL  WEALTH   OF  NATIONS 

world,  the  use  of  force,  be  it  moral  or  physical,  is  unavoid- 
able. 

The  line  of  least  resistance  is  therefore  not  the  path  of 
progress. 

I  am  grateful  to  Mr  Ralph  Hodgson  and  to  Messrs. 
Macmillan  and  Co.,  Ltd.,  for  permission  to  use  the  poem  printed 
here.  I  have  taken  it  from  the  author's  Poems. 

J.  S.  H. 


Vlll 


CONTENTS 


CHAPTER  PAGE 

THE  REAL  AXIOMS  OF  ECONOMICS  i 

PART  I  :  ECONOMIC  TRUTHS 

I.  CIVILIZATION,   ITS  SOURCE  AND   RELATION  TO  UNRE- 
STRICTED LIBERTY  5 

II.  A  DEFINITION  OF  WEALTH,  AND  THE  FORMATION  OF 

NATIONS  12 

PART  II  :  NATIONAL  ECONOMICS 

III.  THE  PRODUCTION  OF  WEALTH  AND  ITS  MEASUREMENT      23 

IV.  THE  PRODUCTION  OF  LUXURIES  AND  THEIR  ESSENTIAL 

DISTINCTION  FROM  NECESSARIES  36 

V.  THE  SUBDIVISION  OF  LABOUR  AND  THE  EXCHANGE  OF 

WEALTH,  OR  TRADE  42 

VI.  THE  NECESSITY  FOR  HANDLERS  OF  WEALTH  AND  THEIR 

ESSENTIAL  DIFFERENCE  FROM  PRODUCERS  60 

VII.  THE  INTRODUCTION  OF  MONEY  73 

VIII.  THE  NECESSITY  FOR  WAGES,  AND  THEIR  RELATION  TO 

PRICES  88 

IX.  THE  DISTRIBUTION  OF  WEALTH  95 

X.  THE  DISTRIBUTION  OF  WEALTH  BY  WAGES,  AND  THE 

NATIONAL  VALUE  OF  INDUSTRIES  103 

XI.  THE  INTRODUCTION  OF  EMPLOYERS  127 

XII.  CO-OPERATION  versus  COMPETITION  141 

XIII.  THE  QUALITY  OF  A  NATION'S  INDUSTRIES  DECIDES  THE 

LIMIT  OF  ITS  ECONOMIC  WELL-BEING  152 

PART  III :   INTERNATIONAL  ECONOMICS 

XIV.  THE  PRODUCTION  OF  WORLD-WEALTH  161 

XV.  INTERNATIONAL  SUBDIVISION   OF  LABOUR,  OR   INTER- 
NATIONAL TRADE  169 

ix 


THE  REAL  WEALTH  OF  NAT 

CHAPTER  PAGE 

XVI.  WHO   BENEFITS   BY  INTERNATIONAL  COMPETITION?          186 

XVII.  THE  EFFECT   OF  THE   INTRODUCTION   OF  MONEY   ON 

INTERNATIONAL  TRADE  I93 

XVIII.  THE   IMPORTANCE   OF  MARKETS,  AND   INTERNATIONAL 

COMPETITION  207 

XIX.  THE  FREE  PRODUCTION  OF  WEALTH  AND  ITS  ASSURANCE    216 
XX.  THE  EFFECT  AND  REAL  OBJECT  OF  PROTECTION  226 

XXI.  A  PROTECTION  GRADED  ACCORDING  TO  THE  NATIONAL 

VALUE  OF  INDUSTRIES  238 

XXII.  A  REAL  '  INTERNATIONALE  '  244 

PART  IV  :  ECONOMIC  DELUSIONS 

XXIII.  THE  ORIGIN  AND  EFFECT  OF  FREE  TRADE  255 

XXIV.  THE  REAL  BENEFICIARIES  OF  FREE  TRADE  AND  THE 

FALLACIES  OF  THEIR  CONTENTIONS  271 


PART  V  :  RECONSTRUCTION 
XXV.  A  NEW  SYSTEM  OF  GOVERNMENT  299 

INDEX  323 


THE  REAL  AXIOMS  OF  ECONOMICS 

1.  A  man,  or  mankind,  can  live  without  wealth. 

2.  What  Nature  provides  in  unlimited  quantities,   without 

man's  intervention,  is  natural  wealth,  belonging  to 
no  man,  and  is  outside  the  scope  of  Economics,  which 
deals  with  the  production,  exchange,  and  distribution 
of  wealth  by  man. 

3.  What  man  produces  is  man-wealth,  and  its  producer  has 

the  first  claim  thereon.  He  may  not,  however,  keep 
it  all  to  himself,  as  the  law  of  the  Survival  of  the  Fittest 
cannot  be  accepted  by  humanity. 

4.  The  first  form  of  man-wealth  is  a  surplus  of  necessaries. 

5.  '  Necessaries  '  comprise  what  is  essential  to  keep  man  in 

health  and  strength,  fit  to  propagate  and  rear  equally 
healthy  children. 

6.  The  intrinsic  value  of  a  surplus  of  necessaries,  produced 

by  man,  is  measured  by  the  number  of  days  it  will 
support  him. 

7.  The  unit  of  intrinsic  value,  by  which  all  wealth  is  measured, 

in  any  climate,  in  any  year,  on  any  day,  is  the  daily 
necessaries  of  life  of  the  average  man. 

8.  The    real    cost    of    production    is    the    consumption    of 

necessaries,  and  wealth  only  results  when  a  man 
produces  more  in  a  given  time  than  he  must  consume. 

9.  Wealth  and  civilization  depend  upon  work. 

10.  The  man  who  produces  daily  his  necessaries  and  no  more, 

creates  no  wealth. 

11.  The    increased    production    of    men,    as    compared    with 

animals,  resulting  in  man-wealth,  is  due  to  their  skill 
or  brains. 

I 


t 


THE  REAL  WEALTH  OF  NATIONS 

12.  This  wealth  is  man-capital,  which  can  be  consumed,  or, 

alternatively,  used  to  produce  more  wealth. 

13.  Labour  and  capital  only  produce  wealth  when  harnessed 

to  skill  or  brains. 

14.  Had  all  men  been  equal  to  the  lowest  there  would  have 

been  no  wealth,  no  civilization,  and  no  progress. 

15.  A  surplus  of  necessaries  permits  of  leisure  or  the  production 

of  luxuries. 

1  6.  The  production  of  luxuries  without  a  surplus  of  necessaries 
means  starvation  for  some  men. 

17.  Luxury  value  is  dependent  on  man's  opinion,  or  demand, 
and  cannot  be  measured  economically. 

1  8.  An  exchange  of  necessaries  which  does  not  take  place  on 
the  basis  of  intrinsic  value  benefits  one  party  at  the 
expense  of  the  other. 

ip.  The  difference  between  the  exchange  value,  or  price, 
and  the  intrinsic  value,  is  the  demand  value.  Exchange 
value  =  intrinsic  value  +  demand  value. 

20.  In  an  exchange  of  luxuries  it  is  impossible  to  say  who 

has  got  the  better  of  the  bargain. 

21.  Competition  means  waste,  and  is  not  the  cause  of  progress. 

22.  All  waste  harms  the  community,  although  the  waste  of 

others  often  benefits  individuals. 

23.  Co-operation  for  profit,  or  the  production  of  wealth  in  the 

shortest  possible  time,  is  beneficial  to  the  community. 
24    Were  all  men  equal,  the  differences  in  the  physical  structure 
and  climate  of  various  parts  of  the  world  would  make 
them  unequal. 

25.  Nationality    is    due    to    the    influence   of    Nature    upon 

man. 

26.  Nationality    is    inevitable    and  natural.     Where   nations 

have  been  destroyed  it  has  been  due  to  force. 

27.  A  nation,  as  a  man,  has  the  first  claim  on  what  it  produces 

and  should  not  be  forced  to  sacrifice  itself  for  others. 
2 


THE  REAL  AXIOMS  OF  ECONOMICS 

28.  The  irreplaceable  raw  material  in  any  country,  or  natural 

wealth,  belongs  to  the  nation. 

29.  One  nation  must  not  be  allowed  to  lose  by  exchange  with 

another  for  the  benefit  of  individuals. 

30.  International  trade  may  benefit  individuals  at  the  expense 

of  the  nation,  and  consequently  may  not  promote  inter- 
national concord. 

31.  The  objective  of  Economics,  or  the  Science  of  the  Govern- 

ment of  Nations,  as  of  the  world,  is  the  maximum 
wealth-production  at  least  labour-expenditure,  com- 
bined with  an  equitable  exchange  and  distribution 
thereof. 


PART  I 

ECONOMIC   TRUTHS 
CHAPTER  I 

CIVILIZATION,  ITS  SOURCE  AND  RELATION  TO 
UNRESTRICTED  LIBERTY 

Men  are  not  equal.  Nature  and  the  Human  Soul  protest 
against  that  monstrous  creed.—  NAPOLEON'S  WISDOM 

CIVILIZATION,  or  the  rise  of  man,  is  due  to  man 
himself,  to  his  inherent  qualities. 
What  does  civilization  mean,  but  a  departure  for 
the  benefit  of  man  from  the  conditions  provided  by  Nature  ? 
And  what  makes  this  departure  possible  but  man  himself, 
the  superiority  or  '  inequality  '  of  man  ?  For  had  all  men  been 
equal  to  the  lowest  they  would  have  lived  and  died,  generation 
after  generation,  in  their  primitive  state  without  any  alteration 
or  improvement,  because  equality  cannot  breed  inequality, 
just  as,  unless  there  be  some  '  selection,'  Nature  is  unable  to 
breed  a  higher  type  of  animal. 

Thus  a  world  of  equally  incapable  men,  working  together 
under  any  conditions  whatsoever,  and  competing  with  one 
another,  could  never  rise  or  become  civilized,  and  consequently 
civilization  cannot  be  due  to  competition. 

Let  us  next  consider  one  man  living  by  himself  under  any 
conditions,  either  completely  uncivilized  or  civilized.  He  has 
eyes,  he  has  ears,  he  has  brains.  He  can  improve  himself,  or 
dis-improve  himself,  but  he  cannot  stand  still,  because  there  is 
no  rest  in  Nature  ;  every  day  he  becomes  older,  and  therefore 
deteriorates  physically,  although  he  may  improve  mentally. 
One  man's  development,  therefore,  or  his  civilization,  is  limited 
by  his  own  inherent  qualities. 

Next,  if  instead  of  one  man  we  had  two  men  living  together, 

5 


THE  REAL  .WEALTH  OF  NATIONS 

and  they  were  both  equal,.-  they  could  not  help  one  another ; 
but  suppose. ianY  <xf:  thenl  ha.s  one  quality  which  the  other  has 
not,  and  the  other  has  ten  qualities  that  the  other  has  not, 
then  by  intercourse  they  can  together  have  eleven  qualities 
in  excess  of  their  equality,  and  the  total  improvement  in 
their  civilization  is  the  number  of  men  multiplied  by  this 
total  of  their  '  inequality/  or  twenty-two. 

Again,  if  there  were  three  men  who  had  respectively  one, 
three,  and  ten  qualities  beyond  their  equality,  their  total 
improvement  is  three  multiplied  by  fourteen,  or  forty-two. 

The  highest  total  civilization  is  thus  equal  to  the  number 
of  men  multiplied  by  the  sum  of  their  separate  '  inequalities.' 

It  is  evident,  therefore,  that  civilization  necessitates  inter- 
course, because  if  a  number  of  men  lived  and  died  within 
a  ringed  fence,  having  no  outside  intercourse  whatever,  they 
could  not  add  their  '  inequalities  '  to  those  of  the  rest  of  the 
world,  nor  take  advantage  of  the  latter  ;  their  advance  in 
civilization  would  be  limited  to  their  own  '  inequality  '  multi- 
plied by  their  own  number. 

Let  us  see  whether  anything  more  is  required  for  the  spread 
of  civilization  than  inequality  and  intercourse,  and  therefore 
now  relax  our  ringed  fence,  allowing  two  sets  of  people  in 
ringed  fences  to  have  intercourse,  but  forbidding  each  to  live 
or  do  anything  within  the  other's  enclosure.  It  would  follow 
that  a  man  from  one  enclosure,  having  intelligence  and  the 
faculties  of  sight,  hearing,  and  smell,  could  extract  some  or  all 
the  civilization  from  his  neighbours,  and  take  it  back  within 
his  own  ringed  fence.  In  other  words,  given  man,  all  that  is 
necessary  for  civilization  is  intercourse  between  unequal  men. 

No  transaction  has  passed  within  our  ringed  fences.  There 
was  merely  a  free  intercourse,  allowing  each  community  to 
take  advantage  of  the  other's  '  inequality.'  Thus,  although 
we  were  taught  at  school  that  Christopher  Columbus  dis- 
covered America,  we  were  never  told  that,  by  increasing  the 
number  of  human  beings  in  intercourse  with  one  another, 
he  was  helping  civilization.  Again,  when  we  read  of  James 
Watt,  Robert  Fulton,  George  Stephenson,  and  other  great 
men  who  lived  or  originated  in  Britain  some  hundred 
6 


CIVILIZATION  AND  LIBERTY 

years  ago,  who  out  of  their  own  brains,  and  because  man's 
intelligence  must  find  expression,  invented  new  modes  of 
power,  thus  making  possible  the  present  intercourse  of  man, 
were  we  taught  that  these  men  were  pioneers  of  civilization  ? 
Of  material  civilization,  of  wealth  and  greater  luxury,  yes  ; 
but  neither  of  these  plays  any  part  in  real  civilization,  the 
highest  form  of  which  is  due  to  Religion,  Literature,  Art, 
Invention,  or  to  other  manifestations  of  man's  inequality, 
beneficial  to  humanity,  capable  of  being  absorbed  by  other 
men.  In  fact,  it  is  obvious  that  the  more  educated  the  human 
race  becomes,  the  less  need  there  will  be  for  physical  contact. 

We  have  referred  above  to  material  civilization,  and  it  is 
frequently  assumed  that  the  desire  to  acquire  wealth,  or  become 
rich,  is  the  source  of  progress  and  civilization.  Yet  this 
assumption  will  not  bear  investigation,  for,  first,  had  all 
primitive  men  been  equal  to  the  lowest,  there  would  exist 
to-day,  in  spite  of  desire,  no  wealth  due  to  their  efforts,  because 
they  would  not  have  progressed  beyond  producing  their  daily 
necessaries  of  life  ;  secondly,  men  can  acquire  wealth  at  the 
expense  of  their  fellow-men  by  robbery  or  trade,"  resulting 
in  no  total  wealth-increase ;  thirdly,  if  a  number  of  men 
had  succeeded  in  producing  wealth,  but  kept  it  all  to  them- 
selves, destroying  it  at  their  death,  the  world  would  not  have 
benefited,  so  that  a  spread  of  material  civilization  can  only 
be  due  to  the  superior  or  unequal  men's  willingness  to  share 
what  they  produce  with  their  fellows. 

Although,  therefore,  civilization  is  not  due  to  man's  desire 
to  acquire  wealth,  he  has  another  natural  instinct  which 
does  lie  at  the  root  of  civilization,  viz.,  his  desire  to  produce 
and  reproduce.  Animals  have  the  instinct  of  reproduction, 
but  it  is  not  in  their  power  as  in  man's  to  increase  the  pro- 
duction of  wealth,  hence  the  world,  if  left  to  itself,  cannot 
support  a  considerable  increase  in  the  number  of  animals. 
On  the  other  hand,  man  can  not  only  reproduce  himself, 
but  produce  wealth,  and  therefore  not  merely  improve  his 
own  conditions,  but  those  of  a  far  greater  population.  Now 
just  as  the  procreation  of  children  is  natural  (but  their  adoption 
unnatural)  to  man,  so  is  that  of  ideas.  Every  normal  man 

7 


THE  REAL  WEALTH  OF  NATIONS 

has  a  natural  desire  to  express  himself,  either  by  perpetuation 
of  his  kind,  or  by  expression  of  his  inequality  or  superiority. 
Man  is  a  producer  of  wealth,  so  that  the  producer  of  man  is 
a  potential  wealth-producer,  and  the  expression  of  man's 
inequality,  which  benefits  the  whole  world,  finds  its  outlet 
in  production.  Thus,  man's  natural  instinct  to  reproduce 
himself  and  to  produce  wealth  in  all  its  different  forms  is 
wholly  beneficial,  and  the  result  of  that  inequality  in  man 
which  is  the  source  of  civilization. 

This  truth  is  evident  when  one  considers  the  lives  of  those 
great  men  of  the  world  who  advanced  civilization. 

Who  ever  heard  of  an  inventor  suppressing  an  invention 
because  he  could  not  see  any  material  reward  ?  It  is  true  he 
might  hope  for  one,  but  his  *  inequality  '  existed  before  he 
had  got  as  far  as  hoping.  Thus,  many  men  of  science,  to 
whom  the  material  wealth  of  the  world  is  largely  due,  have 
spent  their  lives  in  search  of  a  truth,  and  have  not  merely 
died  poor  and  unrecognized,  but  have  been  too  engrossed 
even  to  consider  the  acquisition  of  material  wealth.  Again, 
does  a  poet  write  a  poem  for  immortality  ?  Why,  he  does 
not  think  about  immortality  when  he  writes  his  poem,  Exegi 
monumentum  acre  perennius  notwithstanding.  However,  no 
great  virtue  can  be  attributed  to  a  man  for  this,  because 
there  is  that  within  him  which  compels  expression. 

That  man  to-day  has  so  poor  an  opinion  of  his  own  nature 
is  due  to  his  own  conceit,  for  the  average  man  is  not  willing 
to  learn,  and  seeing  around  him  the  effect  of  man's  qualities, 
wealth,  has  jumped  to  the  conclusion  that  the  desire  therefor, 
which  he  shares  to  the  full,  is  the  cause  of  man's  progress. 
While  Nature,  in  the  first  instance,  compels  man  to  work  to 
keep  himself  alive — and  had  man  obtained  everything  he 
wanted  for  the  asking  he  would  not  have  become  civilized, 
any  more  than  the  spoilt  child  can  become  a  decent  member 
of  a  civilized  community — it  was  nevertheless  the  superior 
man  who  went  on  working  when  he  could  have  enjoyed  leisure, 
gibed  at,  as  he  is  to-day,  by  his  fellows,  with  never  a  thought 
that  his  extra  work  would  produce  wealth  at  all.  His  success 
naturally  aroused  the  greed  of  inferior  men,  and  while  it  is 
8 


CIVILIZATION  AND  LIBERTY 

true  that,  thanks  to  the  improvements  provided  by  superior 
men,  the  former  now  work  more  than  just  enough  to  produce 
their  necessaries,  either  under  compulsion  or  because  they 
see  that  by  working  more  they  receive  more,  the  fact  that 
they  can  do  or  perceive  this  is  due  to  others,  and  their  labour, 
again,  represents  no  advance  in  civilization. 

Similarly,  trade  for  profit  between  nations  does  not  promote 
civilization,  for  it  may  implant  all  the  worst  characteristics 
of  one  nation  upon  another,  and  all  the  advantages  of  trade 
are  obtainable  through  intercourse  alone. 

Let  us  therefore  recognize  the  truth,  that  civilization  is 
due  to  the  inherent  '  inequality  '  and  '  quality  '  of  man  him- 
self, which  he  cannot  and  will  not  suppress. 

There  is  a  further  delusion  in  regard  to  civilization,  viz., 
that  it  advances  with  liberty — liberty  of  man  to  do  what  he 
pleases ;  but  this  again  is  a  denial  of  the  truth  and  an  appeal 
to  man's  lower  nature,  like  his  desire  for  wealth. 

A  man  living  by  himself  can  do  what  he  pleases.  He 
naturally  would,  with  the  result  that  he  leads  an  animal 
existence  and  dies.  A  man  living  with  his  family  ceases  to 
do  what  he  likes,  although  unconsciously,  for  he  must  support 
his  family.  But  he  cannot  take  credit  to  himself  for  doing 
this,  as  many  animals  do  the  same.  If  now  a  number  of 
families  come  into  contact  with  one  another,  and  they  still 
do  as  they  please,  the  strongest  rob  and  crush  the  weaker  ; 
the  process  corresponds  to  the  animal  law  of  the  survival  of 
the  fittest — the  physically  fittest — and  its  effect  is  merely  to 
breed  a  race  of  giants.  If,  on  the  other  hand,  we  consider 
the  intercourse  of  a  number  of  families  who  do  not  do  exactly 
as  they  please,  but,  just  as  a  man  supports  his  family,  one 
family  now  supports  or  helps  another,  we  find  that  the  rule 
of  force  ends  and  that  of  co-operation  begins.  Each  family 
now  takes  advantage  of  the  best  in  the  other.  Force  no 
longer  rules,  but  mind,  brain,  or  intellect.  Each  family 
has  now  no  need  to  do  everything  for  itself,  but  by  co- 
operation can  arrange  to  do  that  for  which  it  is  best 
qualified —not,  be  it  noted,  that  which  it  most  likes  to  do, 
but  that  which  it  is  naturally  suited  or  can  learn  to  do, 

9 


THE  REAL  WEALTH  OF  NATIONS 

Further,  if  the  families  forming  this  group  are  mutually 
supporting  one  another,  an  individual  family  cannot  keep 
the  whole  result  of  its  efforts  to  itself  ;  otherwise  the  group 
would  revert  to  force  again.  Thus,  complete  economic 
liberty,  like  social  liberty,  is  incompatible  with  civilization, 
and  Matthew  Arnold  had  evidently  no  idea  of  the  greatest 
crime  committed  in  its  name  ;  indeed,  the  greater  the  inter- 
course among  men  and  the  higher  their  civilization,  the  less 
liberty  can  they  enjoy.  While  a  single  man  has  complete 
liberty  of  action,  in  a  family,  although  power  is  generally 
wielded  by  the  man  (unless  he  be  hen-pecked),  his  liberty  is 
restricted  for  the  benefit  of  the  whole.  The  combination  of 
families  into  tribes  is  effected  for  the  benefit  of  the  whole 
tribe,  and  to  obtain  still  greater  advantages  nations  are 
formed.  The  wider  the  combination  the  less  personal  liberty 
is  possible,  for  in  all  successful  association  it  is  essential  to 
sink  the  individual  for  the  benefit  of  the  general  body,  if  chaos 
is  not  to  result.  Thus,  just  as  a  man  must  consider  the 
interests  of  his  family,  a  chief  must  consider  those  of  his 
tribe,  a  government  those  of  a  nation. 

We  will  go  further,  and  say  that  force  or  self-discipline 
is  essential  to  civilization,  for  imagine  a  tribe  of  men  all  equal 
save  one  who  is  superior.  The  tribe  can  only  rise  in  civiliza- 
tion by  that  one  enforcing  his  '  inequality  '  on  the  rest  of 
the  tribe ;  unless,  indeed,  they  are  prepared  voluntarily 
to  follow  him.  Thus  we  come  to  the  greatest  danger  of 
democracy. 

The  power  of  an  autocrat— at  least,  the  first  of  a  line— 
must  reside  in  superior  ability,  or  devilry,  which  can  be  en- 
forced upon  the  people  for  their  good,  or  ill.  If  for  their  ill, 
history  has  shown  that  a  counter-a-utocrat  generally  arises 
who  believes  in  the  well-being  of  humanity,  and  overthrows 
his  predecessor.  Thus  under  autocracies  civilization  advanced 
through  the  enforcement  of  the  autocrat's  '  inequality  '  upon 
his  fellow-men.  Now  the  danger  of  democracy  lies  in  this  : 
that  it  has  realized  the  power  of  the  majority,  i.e.,  the  less 
developed  men,  if  organized,  to  dominate,  at  least  by  brute 
force,  the  minority  comprising  the  superior  men ;  and,  unless 

10 


CIVILIZATION  AND  LIBERTY 

this  is  checked,  not  merely  can  one  foresee  a  perpetual  war 
between  man's  higher  and  lower  development,  with  possible 
victory  for  the  latter,  but,  in  the  event  of  the  majority  suc- 
ceeding, the  ultimate  downfall  of  civilization. 

A  perverted  knowledge  and  a  community  of  desire  have 
already  linked  together  the  lower  .natures,  whereas  up  to  the 
present  the  higher  ones  have  not  realized  that  they  also  must 
combine  if  civilization  is  not  to  perish.  Should,  indeed,  the 
'  inequalities  '  organize  their  forces  against  the  '  equalities,' 
the  latter  would  have  no  chance,  and  must  either  accept 
the  terms  of  the  former  or  be  exterminated  ;  for  there  is  no 
question  that  '  inequality  '  can  triumph  if  it  will. 

The  future  of  Democracy,  therefore,  lies  in  the  hands  of 
Democracy.  Is  it  going  to  have  a  voluntary  autocracy  by 
'inequality,'  or  is  it  going  to  attempt  to  force  'equality* 
upon  all,  as  seems  to  be  suggested  by  the  present  labour 
unrest  throughout  the  world,  wherein  we  actually  see 
'  equality '  repudiating  the  '  inequality  '  which  it  has  itself 
selected  to  rule  over  it  ? 

Thus,  unrestricted  liberty,  except  that  of  the  mind,  a  free 
intercourse  of  which  adds  to  the  well-being  of  humanity, 
is  incompatible  with  civilization,  an  advance  in  which  depends 
solely  upon  man's  power  to  propagate  superior  children, 
and  his  ability  to  take  advantage  of  that  superiority  in  the 
minds  of  others  with  which  Nature  has  endowed  them. 


II 


CHAPTER  II 

A  DEFINITION  OF  WEALTH,  AND  THE  FORMATION 
OF  NATIONS 

/  am  resolved  that  Europe  shall  be  one  and  indivisible.  .  .  . 
Language  sows  dissensions  amongst  men  ;  it  fosters  that  effete 
absurdity,  the  Nation  and  National  Spirit.  —  NAPOLEON'S 
ABERRATION 

THE  science  of  Economics  does  not  depend  upon  a 
definition  of  wealth,  any  more  than  the  label  on  a 
jam-jar  proves  its  contents.  The  word  *  jam  '  in- 
dicates neither  the  taste  nor  quality  of  the  article,  and  is 
merely  a  '  generic  '  term  for  a  compound  of  fruit  and  sugar. 

We  shall  see  that  the  word  *  wealth  '  is  used  equally  loosely, 
but  not  being  responsible  for  its  application  we  need  only 
do  our  best  to  define  it. 

The  word  'wealth/  then,  is  derived  from  'well-being,* 
and  as  every  word  and  every  innovation  originates  in  an 
individual  mind,  in  the  first  instance  it  meant  '  individual 
well-being.'  As  civilization  advanced  the  word  was  naturally 
applied  to  mean  all  those  things  which  contribute  to  the 
well-being  of  the  community,  hence  as  Economics  is  concerned 
with  the  well-being  of  all,  we  are  going  to  ignore  the  opinion 
of  individuals  as  to  the  nature  of  wealth  and  its  possession. 

We  are  right  in  doing  so,  and  in  considering  only  the 
general  advantage  and  the  average  man,  because,  firstly,  an 
article  may  contribute  to  the  well-being  of  an  individual,  yet 
be  detrimental  to  the  community,  and,  secondly,  the  personal 
opinion  of  an  individual  as  to  his  well-being  does  not  affect 
the  amount  of  his  wealth. 

As  an  example  of  the  first,  the  drinking  of  neat  brandy 
might  inspire  a  genius  and  it  has  saved  many  lives,  and 
12 


A   DEFINITION   OF   WEALTH 

therefore  contributed  to  the  well-being  of  many  individuals ; 
nevertheless  no  one  would  assert  that  an  enormous  supply 
of  brandy,  or  general  brandy-drinking,  would  contribute  to 
the  well-being  of  humanity.  As  an  instance  of  the  second, 
an  individual  may  be  perfectly  happy  and  satisfied  with  no 
possessions,  and  no  leisure,  but  he  could  not  be  considered 
wealthy. 

We  are,  therefore,  going  to  consider  as  wealth  only  those 
things  that  contribute  to  the  well-being  of  all,  or,  to  make 
the  problem  less  complicated,  to  the  Wealth  of  Nations.  We 
shall  see  later  in  this  book  what  is  the  true  relation  of  each 
nation  to  the  rest  of  the  world. 

Civilization  and  humanity  compel  us  to  recognize  the  right 
of  individual  existence,  so  that  it  is  not  permissible  for  some 
men  to  keep  wealth  to  themselves  while  others  are  dying  for 
lack  of  food.  Further,  man  can  exist  without  wealth,  hence 
a  nation's  wealth  begins  when  all  its  inhabitants  are  pro- 
vided with  their  necessaries  of  life,  a  surplus  of  which,  as 
will  appear  later,  is  the  first  and  most  important  form  of 
wealth. 

Having  ruled  out  individual  opinion  as  to  the  nature  of 
wealth,  we  have  also  to  get  rid  of  another  common  confusion, 
i.e.,  between  the  actual  contribution,  and  the  power  to  contribute 
to  the  well-being  of  humanity  ;  or  the  use  as  compared  with 
the  availability  of  wealth. 

If  a  man,  or  a  nation,  has  something  which  can  contribute 
to  his  well-being  or  potential  wealth,  and  is  ignorant  how 
to  use  it  or  unwilling  to  avail  himself  of  it,  that  cannot  alter 
its  nature,  and  if  that  something  be  wealth,  wealth  it  remains, 
and  man's  thought,  wisdom,  or  foolishness  can  have  no 
effect  upon  it.  For  instance,  if  a  man  have  a  store  of  wealth 
and  forget  its  existence,  he  may  bemoan  his  poverty,  but 
the  wealth  is  there  in  spite  of  his  stupidity,  nor  will  the  fact 
of  recalling  its  existence  affect  the  amount  of  wealth  should 
his  memory  return. 

Wealth  is  thus  a  reality,  not  a  matter  of  opinion,  and  we 
will  define  it  thus  : 

"  Anything  tangible  or  intangible  beyond  man's  immediate 

13 


THE  REAL  WEALTH   OF  NATIONS 

necessaries  of  life  which  contributes  to  the  welfare  and  im- 
provement of  the  human  race,"  and  if  this  definition  be 
correct,  it  proves  that  Economics,  which  deals  with  wealth 
in  all  its  different  phases,  is  not  a  material,  but  a  moral 
science. 

As  a  test  of  our  definition,  a  house  or  a  motor-car  is 
recognized  as  representing  wealth,  but  so  also  should  be  a 
beautiful  poem,  that  is,  a  poem  which  gives  pleasure  to,  or 
in  any  way  brings  improvement  to,  men  and  women.  It  is 
true  that  it  may  provide  no  wealth  for  the  poet  who  wrote  it, 
but  while  it  exists  it  is  wealth,  although  it  may  be  merely 
potential  wealth. 

Wealth  is  therefore  something  that  exists.  It  can  arise 
without  man's  intervention,  being  the  product  of  Nature,  in 
which  case  we  may  call  it  '  natural '  wealth,  although  in 
substance  it  may  be  identical  with  that  produced  by  man, 
or  what  we  might  term  '  man-wealth.'  In  fact,  so  far  as  the 
substance  of  wealth  is  concerned,  we  need  not  make  this  dis- 
tinction. It  is  essential,  however,  as  we  shall  see  later,  to  do 
so  when  we  consider  its  exchange  and  distribution. 

We  will  thus  repeat  our  definition  of  wealth  as,  "  Anything 
tangible  or  intangible  beyond  man's  immediate  necessaries 
of  life  which  contributes  to  the  welfare  and  improvement  of 
the  human  race." 

According  to  the  dictionary,  Economics  is  defined  as 
"  the  science  dealing  with  the  production,  exchange,  and 
distribution  of  wealth,"  but  two  things  should  be  borne  in 
mind  before  accepting  this  as  correct.  First,  that  this  defi- 
nition is  merely  the  personal  opinion  of  the  dictionary 
compiler,  and,  secondly,  that  Economics  in  its  early  days 
was  known  as  '  the  dismal  science  ' ;  indeed,  even  to-day  the 
average  man  leaves  its  interpretation  to  the  experts,  who 
do  not  agree,  and  have  never  agreed,  with  one  another. 

Other  sciences  which  are  accepted  as  exact  do  not  number 
among  their  experts  men  whose  opinions  differ  on  funda- 
mental points,  even  if  in  the  time  of  Galileo  astronomy 
was  considered  a  science  to  attack  the  inconsistencies  of  which 
was  a  crime  punishable  with  death. 


A  DEFINITION  OF  WEALTH 

If  Economics  deals  with  the  production,  exchange,  and 
distribution  of  wealth,  it  is  not,  and  never  can  be,  an  exact 
science,  because  the  distribution  of  wealth  is,  and  always 
will  be,  a  matter  of  opinion.  On  the  other  hand,  the  pro- 
duction and  exchange  of  wealth  by  man  are  governed  by 
definite  laws,  independent  of  his  opinion,  and  can  therefore 
constitute  an  exact,  even  if  a  moral,  science. 

It  is  further  evident  that  we  must  consider  first  the  pro- 
duction of  wealth,  because  we  cannot  exchange  or  distribute 
that  which  does  not  exist,  and  we  are  immediately  confronted 
with  the  fact  that  before  man  produced  any  wealth  whatever, 
Nature  was  busy,  whence  we  are  compelled,  as  already 
mentioned,  to  distinguish  between  natural  and  man-wealth. 
Further,  Nature  is  so  generous  with  some  things  that  she 
supplies  them  in  unlimited  quantities,  e.g.,  air,  of  which  there 
can  be  therefore  no  question  either  of  production,  exchange, 
or  distribution. 

Thus  what  Nature  provides  without  man's  intervention 
is  natural  wealth,  belonging  to  no  individual  man,  and  what 
she  provides  in  unlimited  quantities  is  outside  the  scope  of 
Economics,  which  deals  with  the  production,  exchange,  and 
distribution  of  wealth  by  man. 

Before,  however,  we  pass  to  the  production  of  wealth, 
either  individual  or  national,  we  will  consider  the  evolution 
of  man  from  an  isolated  to  a  communal  state  of  existence. 

THE  FORMATION  OF  NATIONS. — A  man  and  his  family 
make  themselves  a  habitation,  or  home,  whether  a  wigwam 
or  a  house.  For  mutual  support  and  security,  a  number  of 
families  form  themselves  into  a  tribe,  which  is  thus  an  aggre- 
gate of  homes,  containing  human  beings  of  similar  race, 
language,  ideals,  and  ambitions.  A  nation  may  consist  of 
one  tribe,  or  several  tribes  of  various  races,  who  nevertheless 
conform  to  one  common  condition  of  life,  and  as  no  one  can 
deny  that  unless  the  sanctity  of  the  home  be  recognized, 
there  could  be  no  civilization,  the  sanctity  of  a  nation  must 
be  as  inviolate  as  that  of  a  home. 

Let  us  inquire  whether  the  formation  and  existence  of 
nations  is  natural  and  permanent,  and  assume  for  a  moment 


THE  REAL  WEALTH  OF  NATIONS 

that  all  men  are  brothers,  as  indeed  they  should  be,  and  that 
all  men  are  equal — not  in  law,  which  they  must  be  ultimately, 
but  in  capacity,  which  is  nevertheless  impossible,  because 
if  we  recognize  that  men  are  unequal  our  question  is  already 
answered — when  the  indisputable  fact  would  still  remain, 
that  all  parts  of  the  habitable  world  are  not  identical,  nor 
indeed  similar,  and  that  no  effort  of  man  will  ever  make  them 
so.  Thus,  avoiding  the  fatal  error  of  considering  two  variables 
at  the  same  time,  viz.,  unequal  men  and  unequal  conditions, 
we  have  an  assumed  identical  man  inhabiting  countries  of 
different  physical  structure.  Some  parts  of  the  world  have 
a  better  climate,  a  more  bountiful  Nature,  a  more  beautiful 
and  an  easier  existence.  If  all  men  are  to  remain  equal, 
and  none  has  any  right  to  an  advantage  over  others,  it  is 
evident  that  man  must  live  under  equal  conditions  and  be 
free  to  choose  where  he  will  live,  for  if  not,  we  are  compelling 
him  to  be  unequal,  and  the  formation  of  nations  becomes 
inevitable.  If,  indeed,  all  the  inhabitants  of  the  world  want 
to  live  in  the  most  favoured  country,  and  they  naturally 
would,  what  will  happen  to  the  rest  of  the  world  ?  Are  the 
internationalists  prepared  to  live  in  Lapland,  and  if  not,  why 
should  the  Laplanders  do  so  ?  The  advantages  of  England, 
of  France,  of  Italy,  as  compared  with  their  own  country 
have  not  been  brought  to  the  notice  of  the  Laplanders  ;  yet 
who  can  doubt  that  they  would  immediately  avail  them- 
selves of  an  offer  to  inhabit  a  sunnier  climate,  and  a  more 
generous  land? 

Not  merely  do  the  physical  conditions  of  a  country  vary, 
but  they  have  a  direct  influence  on  the  people  who  inhabit  it. 
They  compel  men  to  lead  different  lives,  to  have  a  different 
outlook,  to  hold  different  ideas,  and,  most  important  of  all, 
to  perform  different  work.  But  civilization,  or  progress,  is 
due  to  the  work  of  '  unequal '  men ;  and  consequently  this 
different  work  will  accentuate  the  difference  in  the  civilization 
of  various  countries,  so  that  even  assuming  human  equality, 
no  nation  can  ever  be  the  equal  of  another,  although  each 
nation  may  think  itself  superior  to  the  rest.  As  man's 
physical  surroundings  affect  not  merely  his  material  but 
16 


A  DEFINITION  OF  WEALTH 

also  his  moral  development — witness  the  lack  of  both 
among  the  inhabitants  of  intemperate  zones — it  is  obvious 
that  environment  has  an  enormous  influence  on  the  evolution 
of  nations. 

It  is,  therefore,  evident  that  if  we  could  design  a  new 
world,  and  simultaneously  fill  it  with  an  identical  race,  in  a 
few  generations  nations  would  have  been  evolved.  Their 
boundaries  would  be  defined  by  different  climatic  conditions, 
and  although  there  would  thus  be  fewer  nations  than  at 
present,  their  divergences  would  be,  perhaps,  even  more  pro- 
nounced than  they  are  to-day.  The  fact  that  there  are  so 
many  nations  is  due  to  the  migrations  of  man,  whereby 
different  races  inhabit  both  similar  and  different  climates, 
resulting  in  many  more  nations  than  correspond  to  the 
variety  of  climate  ;  yet,  given  the  conditions  of  the  past, 
the  formation  of  many  nations  was  natural  and  inevitable. 

Those  who  would  invoke  history  as  showing  the  transiency 
of  nations  must  not  overlook  the  cause,  namely,  force.  For 
a  stronger  nation  (and  all  can  never  be  equally  strong)  to 
trample  on  a  weaker  is  a  relic  of  barbarism,  and  although  a 
conquered  nation  may  indeed  absorb,  or  be  absorbed  by,  its 
conquerors,  either  event  is  unnatural,  and  due  to  force  in 
the  first  instance.  If,  then,  nationality  can  only  be  destroyed 
by  force,  '  pacifists  '  and  '  internationalists  '  should  be  at 
daggers-drawn ;  indeed  Napoleon,  who  was  certainly  no 
pacifist,  became,  when  intoxicated  by  his  success,  an  inter- 
nationalist, and  thereby  encompassed  his  own  downfall. 

It  is  therefore  evident  that,  even  assuming  all  men  equal, 
we  have  one  variable  in  our  problem  which  is  beyond  the 
control  of  man,  and  which  compels  '  equal '  man  to  unequal 
conditions,  with  the  result  that  nationality  is  inevitable  and 
therefore  indestructible. 

THE  ECONOMIC  EFFECT  OF  NATIONALITY. — Nationality 
being  indestructible,  we  are  justified  in  considering  the  wealth 
of  nations  rather  than  that  of  the  world,  and,  providing  we 
investigate  later  the  laws  of  international  economics,  we  can 
claim  to  have  treated  the  problem  comprehensively. 

Both  the  wealth  and  life  of  an  individual   are  of  great 

17 


THE  REAL  WEALTH  OF  NATIONS 

interest  to  himself,  although  not  necessarily  to  his  countrymen, 
and  the  same  is  true  of  a  nation  in  relation  to  other  nations, 
unless,  indeed,  the  wealth  of  the  one  is  coveted  by  the  others. 
Nevertheless  Economics  is  an  ethical  and  moral  science  ;  that 
is  to  say,  if  the  benefit  of  some  individuals,  minus  the  loss 
of  other  individuals,  be  negative,  the  result  is  not  wealth, 
but  what  Ruskin  called  '  illth.'  Consequently  it  is  not 
sufficient  to  consider  the  wealth  of  the  world  as  a  whole,  for 
while  this  could  be  enormous,  many  nations,  although 
undeserving  of  such  a  fate,  might  exist  in  misery.  There 
are,  indeed,  many  persons  who  can,  or  think  they  can, 
visualize  an  immediate  brotherhood  of  man,  denying  the 
importance  of  nations,  and  considering  the  whole  world 
only ;  yet  we  have  seen  that  the  division  of  the  world 
into  nations  is  inevitable,  so  that  until  every  man  is  pre- 
pared to  sacrifice  his  interests  for  a  stranger,  no  nation  can 
be  expected  to  impoverish  itself  for  the  benefit  of  another. 
Further,  if  we  find  that  the  laws  applying  to  the  wealth  of 
a  nation  would  hold  good  supposing  that  we  imagine  the 
extension  of  the  nation's  boundaries  to  embrace  the  whole 
world,  these  laws  must  be  accepted  as  universally  applicable, 
for  just  as  a  community  of  families  constitutes  a  nation, 
an  aggregation  of  nations  constitutes  the  world. 

The  boundaries  of  a  nation  may  be  artificial  or  natural, 
and  the  larger  the  country  under  one  government,  the  greater 
may  be  the  variety  of  its  climatic  conditions  and  the  self- 
sacrifice  demanded  from  the  inhabitants  of  the  most  favourable 
districts  on  behalf  of  the  less  fortunate.  Thus,  if  one  nation 
expanded  to  embrace  the  whole  world,  everyone  would  have 
to  work  for  the  common  good  of  all  people,  and  the  workers 
of  those  countries  which  produced  wealth  with  greatest  ease 
would  have  to  hand  over  a  large  share  to  the  less  fortunate, 
just  as  the  rich  are  bound  to  help  the  poor,  nolens  volens,  in 
the  civilized  state  of  to-day. 

The  economic  effect  of  a  country's  climate  on  its  inhabitants 
is  obvious.  The  less  favourable  it  is,  and  the  fewer  Nature's 
gifts,  the  longer  hours  or  the  harder  a  man  must  work  to 
produce  a  given  amount  of  wealth.  Some  climates,  indeed, 
18 


A  DEFINITION  OF  WEALTH 

are  so  severe  that  it  is  difficult  to  rise  above  primitive  con- 
ditions. On  the  other  hand,  where  no  work  is  necessary  the 
inhabitants,  if  left  to  themselves,  would  remain  in  a  state  of 
savagery,  and,  generally  speaking,  a  temperate  climate,  where 
man  has  to  work  to  a  moderate  extent  to  keep  himself  alive, 
is  most  favourable  to  human  progress.  If,  however,  we 
consider  nations  as  merged  into  the  world  as  a  whole,  the 
favoured  nations,  whose  workers  now  clamour  for  an  ever 
shorter  working  day,  would  see  that  if  they  must  contribute 
wealth  to  their  less  fortunate  brothers  elsewhere  their  dreams 
cannot  be  realized. 

Further,  so  long  as  man  is  man  he  will  not,  and  rightly, 
submit  to  work  for  the  benefit  of  loafers,  and  although  theo- 
retically a  government  can  judge  its  subjects,  who  is  to 
supervise  the  energy  and  output  of  each  part  of  the  world 
and  justly  apportion  its  reward  ? 

It  is  easy  to  talk  of  loving  our  brother-man  thousands  of 
miles  away,  but  to  pretend  that  we  are  ready  to  sacrifice  our 
personal  or  national  prosperity  for  the  benefit  of  unknown 
races,  before  we  have  learned  to  do  so  for  our  own  kith  and 
kin,  and  our  neighbours,  is  sheer  hypocrisy.  Those  who 
consider  the  possibility  of  the  world  behaving  as  one  nation 
have  overlooked  the  fact  that  no  two  men  are  equal ;  no  two 
nations  equal,  and  thus  not  equally  deserving.  It  is  a  well- 
known  physiological  fact  that  the  intermarriage  of  white 
and  black  results  in  a  race  with  the  worst  characteristics  of 
each. 

Internationalism  thus  stands  revealed  not  only  as  im- 
becility, but  as  a  cloak  for  perpetual  war — class  war — the 
origin  of  which  we  shall  see  later,  and  to  argue  that  the 
wealth  of  the  world  is  of  more  importance  to  men  than 
that  of  their  nation  is  to  deny  unalterable  physical  facts. 

Nevertheless,  in  considering  the  wealth  of  a  nation,  we 
must  keep  before  us  not  only  the  well-being — which  is  the 
meaning  of  '  wealth  ' — of  all  its  inhabitants,  but  make  sure 
that  the  application  of  our  economic  laws  does  not  infringe 
the  rights  of  other  nations,  and  are  not  such  that  we  should 
have  good  ground  for  complaint  were  similar  laws  enforced 

19 


THE  REAL  WEALTH  OF  NATIONS 

against  ourselves.  Again,  in  considering  economic  problems 
it  is  important  to  rule  out  the  frailties  of  man,  except  in 
so  far  as  it  is  necessary  to  guard  against  them.  For  example, 
it  is  obvious  that  both  an  individual  and  a  nation  can  amass 
wealth  at  the  expense  of  his  fellows  or  of  other  nations,  even 
if  such  wealth  be  not  stolen.  Similarly  the  animals,  which 
know  no  economic  laws,  are  actuated  merely  by  greed,  and 
recognize  only  force,  so  that  the  natural  desire  of  men  the 
world  over  to  get  as  much  as  they  can  for  as  little  as  they 
can,  either  by  swindling  or  force  majeure,  cannot  be  recognized 
as  the  basis  of  an  economic  law. 

The  law  of  the  survival  of  the  fittest,  or  most  physically 
fit,  is  but  the  purely  animal  law  of  force,  and  its  acceptance 
would  have  obliterated  many  of  the  world's  greatest  men  ; 
indeed,  the  progress  and  well-being  of  the  world  must  de- 
pend on  a  denial  of  physical  force,  rather  than  upon  its 
glorification. 

THE  FIRST  DUTY  OF  GOVERNMENT. — Now,  unless  a  bounti- 
ful Nature  supplies  all  necessaries  of  life,  man  must  work  and 
produce,  or  starve,  and  until  he  has  produced  more  than 
his  essential  requirements,  he  has  neither  leisure,  nor  enjoy- 
ment, nor  wealth.  Further,  the  more  wealth  produced  and 
available,  the  greater  is  the  possible  share  of  each  individual, 
and  consequently  the  most  intensive  wealth-production  should 
be  the  first  care  of  every  government. 

Nevertheless,  in  spite  of  the  fact  that  the  prosperity  of 
the  nation  depends  solely  upon  production,  whence,  indeed, 
comes  the  wherewithal  to  defray  the  cost  of  government 
(for  what  are  taxes  but  a  share  of  production,  paid  over  in  the 
form  of  money  ?),  the  utmost  economic  licence  is  permitted 
to  producers,  and  while  there  is  interference  in  almost  all 
other  spheres  of  life,  no  laws  designed  to  stimulate  wealth- 
production  exist. 

The  importance  of  the  greatest  possible  wealth-production 
notwithstanding,  civilization  requires  that  the  weak,  either 
in  brawn  or  brain,  share  to  some  extent  with  their  more 
fortunate  brothers,  so  that  just  laws  of  exchange  and  a  proper 
distribution  of  wealth  must  also  be  of  vital  importance  to  the 
20 


A  DEFINITION  OF  WEALTH 

nation,  wherefore,  as  Economics  deals  with  the  production, 
exchange,  and  distribution  of  wealth,  a  comprehension  of  all 
its  principles  is  evidently  necessary  to  every  statesman. 

Having  established  the  inviolability  of  nations,  from 
which  it  is  evident  that  the  laws  which  govern  the  wealth  of 
nations  must  take  into  account  their  international  relation- 
ships, we  may  now  consider  the  production  of  wealth. 


PART  II 

NATIONAL    ECONOMICS 

CHAPTER    III 

THE  PRODUCTION  OF  WEALTH  AND  ITS  MEASUREMENT 

EF  us  first  consider  one  man,  an  ordinary  one,  and 
assume  that  he  can  live  on  what  Nature  provides. 
He  has  a  wife  and  family,  and  they  can  do  the  same. 
More  families  appear,  and  these  do  likewise.  If  Nature 
replaces  all  that  they  consume,  the  situation  remains  in 
statu  quo.  Nature  may  be  generous  and  produce  more  than 
the  people  require,  in  which  case  the  surplus  is  wasted,  but 
if,  on  the  other  hand,  the  district  became  overcrowded  there 
would  be  a  shortage  of  necessaries.  What  happens  ?  The 
people  fight  for  food.  No  one  has  any  exclusive  right  to  it, 
and  the  strongest  prevail,  but  herein  there  is  no  progress  and 
no  civilization,  although  natural  wealth  exists  so  long  as 
there  is  a  surplus  of  necessaries.  By  this  is  meant  a  quantity 
in  hand  beyond  that  needed  until  the  next  supply  becomes 
available.  Thus,  Nature  having  ordained  seasons  and  harvests, 
a  man  who  has  a  supply  just  sufficient  to  last  him  until  the 
next  crop  is  garnered  has  no  real  surplus,  and  this  is  also 
obviously  true  if  we  ignore  the  seasons,  and  imagine  a  man 
consuming  every  day  the  necessaries  provided  by  Nature 
on  the  previous  one.  It  is  evidently  essential,  as  already 
mentioned,  to  distinguish  between  wealth  due  to  Nature, 
and  that  due  to  man's  efforts  combined  with  the  assistance 
of  Nature,  although  the  actual  form  of  the  two  may  be 
identical,  because,  whereas  a  man  may  claim  the  latter  as 
his  own,  no  one  has  a  right  to  a  monopoly  of  that  which 
Nature  provides. 

A  vital  moral  result  follows,  also,  from  this  distinction,  for 

23 


THE  REAL  WEALTH  OF    NATIONS 

men  who  live  solely  on  the  gifts  of  Nature  and  do  no  work 
never  develop.  They  remain  savages,  whence  we  see  again 
that  to  the  useful  work  of  the  superior  men  is  due  the  growth 
of  civilization. 

We  do  not  know,  even  yet,  all  the  wealth  that  Nature 
has  provided  for  man,  but  it  is  certain  that  whatever  the 
amount  it  can  be  no  index  to  our  civilization,  or  prosperity, 
and  that  in  this  world  the  wealth  which  most  matters  to  man 
is  that  produced  by  his  own  efforts. 

Next  let  us  visit  a  lonely  man  living  on  a  bare  rock.  On 
this  rock  he  has  to  work— that  is,  to  fish — in  order  to  keep 
himself  alive.  If  he  catch  a  surplus  of  fish,  as  just  defined, 
he  has  wealth,  because  a  surplus  of  necessaries  allows  him 
leisure,  or  time  in  which  to  produce  anything  else  he  can. 
The  same  holds  good  if  he  catch  sufficient  fish  in  less  than  a 
whole  day's  work.  It  is  true  that  we  should  not  consider 
this  lonely  man  wealthy,  for  in  his  case  Nature  is  unkind,  as, 
for  instance,  to  the  Eskimos,  yet  leisure  is  obviously  the 
first  form  of  man-wealth,  and  wherever  Nature  does  not 
provide  such  wealth,  the  first  man-wealth  produced  in  that 
place  must  be  an  excess  of  necessaries,  even  if  this  be  only 
sufficient  to  give  a  man  daily  some  hours  to  himself,  apart 
from  those  occupied  in  working,  eating,  or  sleeping. 

Let  us  now  consider  a  man  living  in  a  temperate  climate 
where,  although  Nature  helps  him,  he  must  still  work  to 
keep  himself  alive.  He  must  then  produce  on  the  average 
daily,  first,  his  own  necessaries  of  life,  or  rather  any  de- 
ficiency thereof  not  provided  by  a  bountiful  Nature.  The 
same  being  true  of  all  men  the  world  over,  on  the  average, 
although  both  their  requirements  and  Nature's  generosity 
vary  with  every  clime,  it  will  suffice  to  investigate  the  problem 
of  necessaries  in  a  given  country,  in  which  the  climatic 
conditions  are  approximately  constant. 

Considering  first  unmarried  men  only,  we  will  regard  as 
their  daily  necessaries  of  life  all  that  sustenance  in  the  form 
of  food,  protection  in  the  form  of  clothing  and  shelter,  warmth 
in  the  shape  of  fuel,  produced  by  man's  labour,  which  is 
essential,  on  the  average,  throughout  a  year  to  keep  them 
24 


THE  PRODUCTION  OF  WEALTH 

in  health  and  strength,  and  fit  to  work  to  their  fullest 
capacity. 

Now,  although  one  man's  necessaries  are  not  identical 
with  those  of  another— e.g.,  a  big  man  generally  requires  more 
food  than  a  small  one,  even  if  some  small  men  have  a  voracious 
appetite — it  is  undeniable  that  the. average  man  in  any  given 
climate  needs  daily  a  definite  amount  of  food,  consumable 
in  various  forms,  which  have  been  scientifically  determined, 
and  obtainable  from  a  great  variety  of  commodities.  Thus, 
although  one  man's  meat  is  another  man's  poison,  the  average 
man  must  consume  daily  a  minimum  amount  of  nourishment, 
as  proteins,  carbohydrates,  and  fats,  without  which  he  will 
die  or  deteriorate. 

For  instance,  according  to  Bryce,  Dietetics  (1912),  a  normal 
adult,  under  moderate  conditions  of  muscular  work,  requires 
daily  125  grammes  of  protein,  500  grammes  of  carbohydrate, 
and  50  grammes  of  fat,  to  provide  which  a  mixed  diet  is 
necessary,  a  suitable  one  being  I  Ib.  bread,  J  Ib.  meat,  J  Ib. 
fat,  I  Ib.  potatoes,  J  pint  milk,  J  Ib.  eggs,  J  Ib.  cheese.  On 
the  other  hand,  the  Royal  Society  Committee  recommends 
70  grammes  protein,  550  grammes  carbohydrate,  and  90 
grammes  of  fat.  The  exact  constituents  and  quantities  are 
immaterial — and  we  may  eventually  discover  a  better  com- 
bination, to  the  advantage  of  all — yet  the  fact  remains  that 
the  average  man  must  consume  a  certain  minimum  amount 
of  each,  and  that  their  production  occupies  a  certain  number 
of  labour-hours. 

It  is  undeniable,  of  course,  that  some  persons  can  take 
no  sugar,  but,  even  if  they  be  not  suffering  from  diabetes, 
they  must  be  abnormal,  or  they  require,  perhaps,  more  fat ; 
in  either  case  we  are  not  considering  individuals,  but  the 
needs  of  the  normal  or  average  man,  which  are  neither  a 
matter  of  taste,  opinion,  nor  custom.  The  test  of  a '  necessary/ 
or  of  the  value  of  an  article  as  a  '  necessary,'  is  whether  man 
must,  if  deprived  of  it,  substitute  an  alternative,  or  whether 
he  deteriorates  permanently  in  health,  strength,  or  quality 
when  unable  to  obtain  it.  For  instance,  although  we  are 
nearly  all  slaves  to  the  habit,  tobacco  is  not  a  necessary  of 


THE  REAL  WEALTH   OF  NATIONS 

life,  because  its  use,  on  the  whole,  does  not  reduce  our  other 
needs.  Indeed,  not  merely  has  man  lived  happily  and 
healthily  in  the  past  without  many  commodities  which  are 
now  wrongly  considered  necessaries,  but,  until  he  has  ac- 
quired his  essential  necessaries  of  life,  he  will  be  forced  to 
dispense  with  any  luxuries. 

The  foregoing  is  also  true  of  the  average  man's  clothing, 
boots,  housing,  etc.,  which  he  wears  out  at  a  certain  rate  per 
day,  and  also  of  his  fuel,  although,  owing  to  variable  seasons, 
the  amount  of  the  latter  he  requires  daily  must  be  averaged 
over  the  year.  It  appears,  therefore,  so  far,  that  the  necessaries 
of  life  of  the  average  single  man  are  definite  and  constant  in 
any  climate,  for  a  given  race  of  man. 

Further,  although  it  is  evident  that  the  daily  necessaries, 
perforce  produced  by  man,  of  an  Equatorial  negro  and  an 
Eskimo  differ  enormously,  those  of  dwellers  in  the  more 
temperate  climates,  with  which  we  are  primarily  concerned, 
are  not  so  very  dissimilar,  because,  although,  for  instance, 
the  South  of  France  is  much  warmer  than  England,  and 
therefore  its  inhabitants  require  less  warmth  and  shelter, 
food  is  the  most  important  item  in  both  countries,  and  its 
production  occupies  the  most  labour  ;  indeed,  ignoring  race, 
and  the  effect  of  climate  upon  appetite,  man's  necessaries  of 
food  are  definite.  Consequently,  in  this  investigation  we 
shall  consider  the  daily  necessaries  producible  by  man 
to  be  constant  in  all  climates,  for  while  the  amount  thereof 
varies  inversely  with  the  fertility  of  any  country,  the  most 
civilized  races  enjoy  temperate  climates  and  inhabit  relatively 
fertile  lands. 

In  order,  however,  to  perpetuate  the  human  race,  a  wife 
and  two  children,  who  should  reach  maturity,  must  also  be 
provided  for,  so  that  we  can  now  define  economically  the 
daily  necessaries  of  life  of  the  average  man  as  all  his  production 
which  is  essential,  such  as  food,  clothing,  shelter,  and  fuel, 
to  keep  him  and  his  wife  in  health  and  strength,  and  fit  to 
propagate  and  rear  at  least  two  equally  healthy  children. 
We  will  denote  these  average  daily  necessaries  by  N,  and 
repeat  that  their  amount  is  definite  and  constant  in  any 
26 


THE  PRODUCTION  OF  WEALTH 

climate  for  a  given  race  of  man,  and  not  a  figment  of  our 
imagination,  but  a  tangible  quantity,  although  apparently 
unrecognized. 

As  an  indication  also  of  the  economic  importance  of 
necessaries,  we  would  refer  to  the  investigations  carried  out 
by  Mr  Seebohm  Rowntree  upon  the  conditions  of  the  very 
poor.  Mr  Rowntree  showed  that  an  unskilled  workman, 
generally  the  son  of  an  unskilled  workman,  with  a  wife  and 
three  children — the  extra  child  allowing  a  margin  for  pre- 
mature death  or  sterility — went  below  what  he  termed  "  the 
poverty  line,"  i.e.,  received  less  than  his  bare  necessaries  of 
life,  three  times  during  his  existence,  and  that  22s.  was  in 
those  days  (1900)  the  approximate  weekly  sum  required  to 
purchase  those  necessaries. 

Assuming,  then,  a  population  of  45,000,000,  or  9,000,000 
families  of  five  each,  this  represents  a  total  sum  of  £514,000,000 
per  annum,  or,  bearing  in  mind  the  present  depreciation  in 
the  purchasing  power  of  money,  a  total  to-day  of  well  over 
£1,000,000,000. 

It  is  clear  that  wealth  only  results  when  man  pro- 
duces more  than  he  must  consume,  or  when  the  value  of 
what  he  produces  exceeds  his  cost  of  production.  Let  us 
investigate  this  latter. 

A  farm  labourer,  for  instance,  rises  in  the  morning.  He 
dresses,  then  eats  and  drinks.  He  next  puts  on  his  boots 
and  goes  out  to  work.  He  comes  home,  eats  and  drinks, 
and  returns  again  to  work.  In  the  evening  he  comes  home 
once  more,  eats  and  drinks,  and  goes  to  bed  ;  this  process 
he  repeats  day  after  day.  If,  apart  from  what  Nature  pro- 
vides unaided,  he  does  not  produce  on  the  average  at  least 
as  much  as  he  must  consume,  or  wear  out,  i.e.,  his  necessaries, 
he  will  die.  But  again  that  is  not  all.  If  this  man  merely 
produced  enough  to  keep  himself  alive,  being  unable  to  live 
for  ever,  his  race  would  die  out ;  consequently  he  must 
also  provide  the  necessaries  of  his  wife  and  two  children,  who 
again  beget  two  children,  when  by  so  doing  the  loss  of  the 
man  himself  is  compensated  for,  and  the  population  is  main- 
tained at  a  constant  level.  If,  then,  by  '  necessaries  of  life  ' 

27 


THE  REAL  WEALTH  OF  NATIONS 

we  understand  all  that  is  essential  to  keep  a  man  in  health 
and  strength  and  fit  to  work  to  his  fullest  capacity,  and 
to  propagate  and  rear  two  equally  healthy  children,  these 
are,  as  far  as  man  is  concerned,  exactly  his  cost  of  pro- 
duction. 

The  cost  of  production,  considering  labour  only,  is  thus 
the  consumption  of  necessaries  by  the  workers  engaged  in 
production  and  their  dependents,  or  N,  and  the  resultant 
wealth  must  be  the  value  produced  less  this  cost.  We  must 
therefore  see  how  to  measure  the  value  produced. 

Now,  whereas  animals  generally  make  provision  only  for 
the  morrow,  or  at  most  for  one  season,  man  can  accumulate 
a  surplus  of  necessaries,  which  are  storable  even  under  the 
most  primitive  conditions.  Nevertheless,  it  is  obvious  that 
any  accumulation  of  necessaries  which  will  merely  last  until 
the  next  harvest  is  gathered  represents  no  real  surplus ;  in 
fact  it  is  much  simpler,  and  equally  correct,  to  imagine  a  man 
every  day  throughout  the  year  just  producing  and  consuming 
daily  his  necessaries  of  life,  N. 

So  soon,  however,  as,  but  not  before,  he  produces  a  surplus 
over  N,  he  can  rest  from  his  labours  and  enjoy  leisure,  the 
very  first  form  of  man-wealth. 

It  is  further  evident  that  the  quantity  of  leisure  this 
man  can  enjoy  is  decided  by  the  number  of  hours  or  days 
his  surplus  necessaries  will  support  him. 

For  instance,  if  he  had  in  his  possession  an  excess  of 
necessaries  equal  to  two  days'  consumption  thereof,  this 
would  allow  him  two  days'  leisure.  Indeed,  were  food  the 
only  necessary,  as  it  is  in  some  climates,  the  nutriment  con- 
tained in  that  which  was  stored  would  obviously  decide  the 
amount  of  leisure  obtainable.  Similarly,  clothes  last  a  certain 
time,  in  other  words,  a  man  wears  out  a  definite  length  of 
cloth  per  day,  and  the  value  of  any  stock  of  material  can 
be  measured  in  a  similar  manner,  as  also  that  of  housing, 
fuel,  etc. 

N  consists,  therefore,  of  Na,  food,  Nb,  clothing,  Nct  hous- 
ing, Nd,  fuel,  and  the  value  of  any  surplus  food  is  measured 
by  the  first,  of  clothing  by  the  second,  etc.  Further,  as  we 
28 


THE  PRODUCTION  OF  WEALTH 

know  their  relative  cost,  or  the  number  of  labour-hours 
required  to  produce  each  of  them,  there  is  no  difficulty  in 
calculating  the  number  of  complete  units  N,  represented  by 
various  quantities  of  Na,  Nb,  etc.,  and  in  practice  there  will 
generally  be  the  smallest  store  of  food,  because  food  is  the 
most  perishable  of  all  necessaries. 

Thus,  while  a  man  or  a  nation  with  a  year's  supply  of 
each  in  hand  would  have  365  units  of  wealth  in  reserve, 
if  a  two  years'  surplus  of  food  exist  but  no  surplus  clothing, 
there  would  be  no  complete  wealth  units,  although,  as  we 
shall  see,  a  still  larger  amount  of  wealth  is  actually  avail- 
able. 

Up  to  the  present  the  value  of  the  nation's  annual  wealth- 
production  does  not  appear  to  have  been  measured  in  absolute 
units,  which  is  not  surprising,  as  such  a  unit  has  not  been 
recognized.  It  is  true  that  figures  are  published  showing 
the  value  of  the  national  production  in  money,  but  such  a 
calculation  is  merely  relative,  and  equally  applicable  to  our 
unit  of  value ;  i.e.,  knowing  as  we  do  the  price  of  Na,  Nb,  Nc, 
Nd,  we  can  also  express  their  relative  value  in  terms  of  money. 
Nevertheless,  to  arrive  at  the  number  of  complete  units  is 
not  difficult,  for  if  we  know  how  many  labour-hours  are 
necessary  to  produce  a  year's  supply  of  clothing,  and  of  food, 
we  know  what  reduction  in  food  units  would  be  required  to 
allow  of  the  production  of  clothing  ;  in  other  words,  basing 
our  calculation  on  labour-hours,  it  is  merely  an  algebraical 
proposition  to  find  the  number  of  complete  units  of  wealth 
which  could  have  existed  had  the  labour  been  arranged  so 
as  to  produce  them. 

While  production  could  be  readily  organized  to  produce 
complete  units,  it  would  be  disadvantageous,  owing  to  the 
fact  that  all  goods  are  not  equally  storable ;  indeed,  the  prac- 
ticability of  such  organization  affects  the  use  of  our  mul- 
tiple unit  even  less  than  it  appears,  because  foods,  the 
relative  dietetic  value  of  which  is  known,  form  by  far  the 
most  important  item,  i.e.,  their  production  occupies  by  far 
the  most  labour-hours.  We  shall  return  to  this  question 
when  dealing  with  the  exchange  of  wealth. 

29 


THE  REAL  WEALTH  OF  NATIONS 

The  fact  that  by  consuming  extra  food  one  can  economize 
in  fuel  does  not  affect  the  size  of  Na,  Nb,  etc.,  because  every 
sane  nation  will  endeavour  to  obtain  its  necessaries  for  the 
least  labour  expenditure,  i.e.,  N  in  every  climate  corresponds 
with  the  point  of  highest  economic  efficiency.  By  this  is 
meant  that  combination  of  necessaries  which  can  be  produced 
in  the  shortest  time,  for  supposing  man  could  live  on  200 
grammes  of  fat  per  day  alone,  that  would  only  benefit  him 
providing  they  cost  to  produce  a  less  total  of  labour-hours, 
because  although  N  itself  would  be  smaller,  the  surplus  N 
produced  by  man  might  be  proportionately  still  less. 

This  statement  may  appear  to  clash  with  our  claim  that 
N  is  constant  and  definite,  yet  so  it  is  over  a  period  of  time, 
i.e.,  until  we  discover  a  smaller  N,  or  one  produced  in  less 
labour-hours,  when  with  a  new  but  definite  unit,  in  the  first 
case  our  surplus  will  have  a  greater  value,  and  in  the  second  case 
even  though  N  were  larger  man  will  be  able  to  produce  a 
greater  surplus  of  necessaries,  or  enjoy  more  leisure.  Conse- 
quently N,  although  consisting  of  several  incommensurable 
commodities,  is  definite,  constant,  and  tangible,  and  measures 
the  amount  of  a  surplus  of  necessaries. 

Now  the  measure  of  wealth  is  its  value  to  man. 

The  value  to  man  of  the  daily  necessaries  he  produces 
lies  in  their  utility  to  him,  i.e.,  they  keep  him  alive.  The 
value  of  food  lies  in  its  nutriment,  of  clothes  in  their  warmth, 
etc.  Let  us  call  this  intrinsic  value,  and  consider  the  measure- 
ment of  such  wealth  only. 

In  order  to  measure  any  commodity  whatsoever  it  is  essen- 
tial to  have  a  unit,  and  every  science  worthy  of  the  name 
has  an  exact  system  of  measurement  based  on  the  accept- 
ance of  a  clearly  defined,  constant,  and  tangible  unit,  even 
though  it  be  equally  as  arbitrary  as  our  N.  For  instance, 
the  modern  unit  of  length,  the  metre,  is  merely  defined  as 
one  ten-millionth  of  the  earth's  quadrant  from  the  North 
Pole  to  the  Equator,  while  an  electrical  current  has  unit  strength 
when  I  cm.  length  of  its  circuit  bent  into  an  arc  of  I  cm. 
radius  exerts  a  force  of  I  dyne  on  a  unit  magnet  pole  placed 
at  the  centre  (Electricity  and  Magnetism,  by  S.  P.  Thompson). 

30 


THE  PRODUCTION  OF  WEALTH 

Thus  N,  being  definite,  constant,  and  tangible,  and  measur- 
ing directly  the  value  of  a  surplus  of  all  necessaries,  may  be 
accepted  as  a  true  unit  of  intrinsic  value  in  the  science  of 
Economics. 

As  a  shortage  of  necessaries  will  lead  to  a  man's  death, 
or  deterioration,  a  nation,  which  consists  of  an  aggregate 
of  men,  must  also  first  produce  sufficient  necessaries  of  life 
for  all,  for  otherwise  health,  or  well-being,  will  be  lost.  Thus, 
a  nation  has  no  true  wealth  until  it  has  a  surplus  beyond 
the  necessaries  of  the  whole  population,  the  value  of  which 
is  again  measured  by  the  necessaries  of  life  of  the  average 
man  in  that  country,  or  N. 

Although  animals  do  not  know  how  to  increase  their 
production  of  necessaries,  and  originally  uncivilized  men 
living  in  temperate  climates  were  also  able  to  produce  daily 
on  the  average  but  little  more  (witness  the  conditions  of  the 
early  Britons),  the  higher  mental  or  manual  faculties  of 
certain  individuals  (our  superior  or  '  unequal '  men)  resulted 
in  the  evolution  of  improved  implements,  such  as  spades, 
ploughs,  etc.,  whereby  both  themselves,  their  fellows,  and 
future  generations  were  enabled  to  produce  their  necessaries 
in  a  shorter  time,  and  thus  increase  the  amount  of  their 
leisure. 

Obviously,  the  value  of  a  labour-saving  device  depends 
upon  the  number  of  working  hours  it  will  save,  and  as  this 
corresponds  to  a  reduction  in  the  consumption  of  necessaries, 
whereby  their  production  is  unnecessary,  its  intrinsic  value  is 
measured  directly  by  the  same  unit  of  value,  N.  For  example, 
the  intrinsic  value  of  a  spade  is  measured  by  the  labour  it 
saves,  or  its  utility,  or  the  number  of  working  hours,  corre- 
sponding to  an  amount  of  necessaries,  which  can  be  saved 
through  its  use.  If,  indeed,  more  labour  were  required  to 
produce  the  spade  than  it  saved  before  being  worn  out,  the 
world  would  be  poorer  and  not  richer  by  its  production. 

The  production  of  man's  necessaries  of  life  was  primarily 
the  work  of  unskilled  labour,  and  is  to-day  by  no  means  that 
of  the  most  skilled,  for  the  most  unskilled  man  must,  in  any 
climate,  be  able  to  produce  his  own  necessaries  of  life,  or 

31 


THE  REAL  WEALTH  OF  NATIONS 

alternatively  he  will  die.  Let  us  assume  potatoes  to  represent 
the  whole  necessaries  of  man.  If  the  use  of  a  spade  increase 
the  production  of  potatoes,  before  being  worn  out,  by  more 
than  its  producer  consumed  while  making  it,  it  is  better  to 
produce  spades  than  potatoes,  because  the  former  represent 
a  greater  intrinsic  value  or  utility  per  hour's  work.  The 
maker  of  the  spade,  seeing  this  utility,  will  demand  for  it 
more  potatoes  than  the  equivalent  of  his  hours  of  work,  and 
if  the  potato-grower  cannot  make  spades  he  must  agree. 

We  will  call  this  first  spade-maker  a  skilled  man  ;  but  it  is 
obvious  that  if  all  the  potato-growers  learned  to  make  spades, 
they  would  also  become  equally  skilled,  whence  although  the 
first  spade-maker  was  skilled  relatively  to  the  potato-growers, 
all  these  men  would  now  be  considered  relatively  unskilled. 
Nevertheless,  they  are  all  better  off  than  they  were  before, 
and  consequently  more  civilized,  because  of  the  skill  of  the 
first  spade-maker.  Similarly  the  invention  of  the  first  plough 
was  due  to  brains  and  skill ;  it  enormously  increased  the 
world's  wealth-production,  although  its  originator  may  not 
have  materially  benefited. 

Although  skill  does  not  arise  solely  from  the  consumption 
of  necessaries,  for  the  largest  eater  is  not  the  best  producer, 
nor  the  smallest  one  the  cleverest  man,  energy  and  skill  are 
nevertheless  the  result  of  the  consumption  of  necessaries 
converted  with  varying  degrees  of  efficiency  into  energy. 

If,  then,  we  define  an  unskilled  man  as  one  who,  without 
implements  devised  by  others,  can  produce  daily  his  necessaries 
of  life  and  no  more,  or  can  do  other  work  of  an  equal  quality, 
a  skilled  man  is  one  who,  by  applying  his  mental  or  manual 
faculties,  produces  a  greater  daily  value.  Indeed,  if  a  skilled 
man  did  not  produce  a  greater  value  per  hour  than  an  un- 
skilled, there  would  be  no  use  in  skill. 

Skilled  workers  therefore  should,  other  things  being  equal, 
be  always  better  off  than  unskilled,  because  a  man  is  not  born 
skilled,  and  although  in  our  present  civilization  all  do  not  have 
equal  chances,  it  is  undeniable  that  a  loafer  cannot  become 
skilled,  for  while  brains  are  the  gift  of  Nature,  their  appli- 
cation depends  largely  upon  a  man's  own  merit  and  efforts. 

32 


THE   PRODUCTION   OF   WEALTH 

Consequently,  skill  must  be  encouraged  and  rewarded  where 
possible  (though  many  a  genius  has  died  unhonoured),  or 
there  would  be  no  inducement  to  become  skilled  and  a  pre- 
mium would  be  put  on  idleness. 

Nevertheless,  only  because  we  have  a  common  measure 
for  the  value  of  the  production  of  all  necessaries  and  labour- 
saving  devices  in  our  unit  N,  is  the  existence  of  skill 
demonstrable. 

Notwithstanding  the  foregoing,  it  is  evident  that  skill  is 
only  a  relative  term,  for,  as  education  improves,  we  should 
naturally  expect  an  advance  in  the  average  capacity  of  the 
whole  community,  even  if  all  men  can  never  become  equally 
skilled  ;  or  if  they  could,  the  world's  work  calls  for  varying 
degrees  of  skill.  Thus,  the  more  skilled  a  man  becomes,  the 
more  the  intrinsic  value  of  his  work  rises  above  N.  He  should 
benefit  always  through  such  production,  as  should  his  nation, 
for  the  greater  the  amount  of  intrinsic  value  in  the  country, 
be  it  contained  in  the  quantity  or  quality  of  the  goods  made 
available,  the  greater  the  share  of  each  individual  should  be. 
Let  us  apply  the  foregoing. 

Richard  Arkwright  invented  a  power  loom,  and  although 
his  works  were  burnt  by  his  infuriated  men,  the  world  benefits 
to  this  day.  James  Watt  watched  a  kettle,  and  doubtless 
history  would  have  reported  that  he  burned  the  cakes,  like 
Alfred  the  Great,  had  there  been  any  ;  he  was  not,  however, 
dozing,  but  using  his  brains,  and  by  producing  an  efficient 
steam-engine  he  ranks  among  the  greatest  of  economizers  of 
human  labour  and  producers  of  material  wealth.  These  men, 
indeed  all  inventors,  used  and  developed  gifts  with  which 
Nature  had  endowed  them,  and  most  inventors  were  of  humble 
birth.  They  WORKED,  and  the  development  of  brain,  mind, 
or  manual  skill  results  from  work.  Thus,  as  civilization 
depends  upon  the  production  of  wealth,  we  see  again  that  it 
is  due  to  the  WORK  of  SUPERIOR  men. 

Wealth,  when  produced — i.e.,  all  surplus  beyond  man's 
necessaries  of  life — can  be  used  up  as  fast  as  it  is  produced.  If 
it  is,  man  may  work,  produce,  and  use,  again  and  again,  but 
his  wealth  production  cannot  increase,  no,  in  spite  of  the 

33 


THE  REAL  WEALTH  OF  NATIONS 

availability  of  skill  and  brains.  Thus,  when  James  Watt  left 
the  useful  work  he  was  doing,  and  started  experimenting, 
which  might  have  resulted  in  waste,  another  man  did  his 
work,  and  other  men  still  had  to  work,  to  feed,  clothe,  etc., 
James  Watt,  who  was  enabled  to  work  upon  his  experiments 
because  of  the  surplus  production  of  other  men.  But  for  this 
he  could  not  have  produced  his  new  steam-engine.  Such 
surplus  material,  or  wealth,  is  Capital. 

The  first  capital  in  the  world  was  provided  by  Nature,  and 
without  it  man  could  have  produced  nothing  at  all. 

Capital,  due  either  to  Nature  or  to  man,  is  essential  for  an 
increased  production  of  wealth,  and  an  artist  cannot  paint  a 
masterpiece  unless  there  is  a  surplus  of  necessaries,  or  capital, 
available  for  his  sustenance.  Nevertheless,  capital  does  not 
produce  wealth,  if  it  remain  unemployed.  Thus,  the  man  who 
produces  more  than  he  consumes  may  or  may  not  contribute 
to  the  production  of  still  more  wealth.  If  he  can  hoard  his 
surplus  without  deterioration,  others  will  benefit,  but  only  at 
his  death,  whereas  if  he  use  it  or  allow  it  to  be  used  to  increase 
production,  the  benefit  is  immediate.  We  see,  therefore,  that 
a  capitalist  may  be  a  benefactor  to  society,  but  only  if  he  help 
to  increase  production  or  to  avoid  waste.  We  refer  here,  of 
course,  to  actual  wealth,  not  to  tokens  therefor,  or  money. 

Similarly  the  unemployment  of  Nature's  capital  represents 
no  loss  of  wealth  so  long  as  it  does  not  deteriorate,  as  it  can 
be  brought  into  use  at  a  later  date,  perhaps  even  to  better 
advantage.  For  instance,  coal  is  natural  capital,  its  intrinsic 
value  being  the  number  of  its  heat  units,  or  calories,  which  can 
be  used  up  to  sustain  life  or  to  produce  more  wealth.  If  not 
used,  it  is  still  wealth,  although  only  potential ;  and  in  view 
of  the  brains  at  work  the  world  over  improving  the  efficiency 
of  coal-conversion  into  energy,  it  is  obvious  that  a  nation 
should  economize  as  far  as  possible  its  coal,  or  indeed  any 
other  irreplaceable  raw  material,  which  is  of  intrinsic  value 
to  man. 

We  have  now  shown  that  the  mere  existence  of  neither 
capital  nor  unskilled  labour  produces  wealth.  Wealth,  con- 
sisting of  a  surplus  of  necessaries  or  labour-saving  devices, 

34 


THE  PRODUCTION  OF  WEALTH 

results  only  when  both  are  harnessed  to  skill  (and  we  repeat 
that  by  skill  is  meant  any  effort  of  hand,  brain,  or  mind, 
designed  to  achieve  greater  or  better  production,  or  a  higher 
efficiency) ;  so  that  labour  and  capital  are  the  '  team  '  and 
skill  is  the  '  whip  '  which  must  drive  both  and  decide  as  to 
their  work  and  their  reward. 


CHAPTER   IV 

THE  PRODUCTION  OF  LUXURIES  AND  THEIR  ESSENTIAL 
DISTINCTION  FROM  NECESSARIES 

WE  found  in  the  previous  chapter  that  leisure  was 
the  first  form  of  wealth,  and  we  talk  commonly  of 
a  man  of  leisure.     The  result  of  leisure  should  be 
pleasure,  or  the  production  of  more  wealth  and  leisure.     But 
leisure  only  allows  a  man  to  enjoy  himself  or  to  think,  to  use 
the  faculties  with  which  Nature  has  endowed  him  in  order  to 
improve  himself  and  his  fellows,  or  to  produce  more  wealth, 
and  does  not  compel  him  to  do  so.     Thus  man  may  squander 
wealth. 

We  have  seen  how  primitive  man  worked  with  his  hands, 
and  produced  only  his  necessaries  of  life.  One  more  intelligent 
(a  superior  man)  used  his  brains  to  devise  a  spade.  He  was 
therefore  able  to  produce  the  same  quantity  in  less  time,  and 
thus  obtain  leisure  or  wealth.  Again,  this  man,  or  his  successor, 
having  learned  to  use  his  gifts,  does  not  twiddle  his  thumbs 
in  his  leisure  hours,  but  tries  to  improve  still  further  his  tools 
and  implements,  and  also  his  conditions  of  life.  He  builds 
himself  a  better  wigwam,  cultivates  a  better  garden ;  he 
puts  up  a  fence  to  protect  the  fruits  of  his  labour  ;  he  makes 
ornaments  for  his  wives  (plural),  which  accounts  perhaps  for 
the  slow  progress  of  polygamous  in  comparison  with  mono- 
gamous nations,  etc.  The  superior  man  is  never  satisfied. 
He  makes  for  himself  (and  others  copy  him)  better  houses, 
better  clothes,  better  beds  and  furniture — in  fact,  he  makes 
all  sorts  of  things  that  are  no  longer  necessaries,  and  which 
we  call  luxuries. 

Luxuries  comprise  all  things  which  are  not  necessaries  ; 
whether  a  man  considers  them  necessaries  or  luxuries  is  of  no 

36 


NECESSARIES  AND  LUXURIES 

importance  to  the  fact.  Leisure,  which  is  the  first  result  of 
a  surplus  of  necessaries,  permits  of  the  production  of  luxuries, 
so  that  the  very  existence  of  luxuries  depends  upon  a  surplus 
of  necessaries.  We  must  admit  that  this  is  not  true  of  a 
slave  state,  nor  necessarily  of  an  uncivilized  nation,  but,  so 
soon  as  the  sanctity  of  human  life  is  recognized,  it  cannot  be 
permitted  that  one  section  of  the  community  starves  while 
another  enjoys  luxuries.  Economics  being  an  ethical  science, 
the  well-being  of  all  must  be  considered,  and  there  is,  therefore, 
no  true  wealth  increase  if  it  be  obtained  at  the  expense  of 
other  men's  lives. 

We  have  been  brought  up,  indeed,  to  ignore  the  importance 
of  necessaries,  and  to  think  only  of  pleasure  and  luxuries. 
Certainly  the  possession  of  these  is  a  sign  of  wealth,  without 
which  life  to  most  of  us  would  not  be  worth  living,  yet 
necessaries  come  first  and  are  economically  of  far  greater 
importance  than  luxuries.  For  instance,  if  there  be  a  shortage 
of  the  latter,  we  can  go  without  them,  or  if  the  price  of  a 
luxury  be  considered  excessive,  this  will  fall  if  everyone 
combines  to  dispense  with  it,  whereas  combining  to  go  without 
necessaries  is  impossible  and  would  bring  starvation  and  death. 

In  Chapter  III  we  saw  that  the  value  of  a  surplus  of 
necessaries  in  any  climate  is  measured  by  the  unit  of  value  N, 
or  the  average  man's  daily  necessaries  of  life,  but  that  does 
not  tell  us  how  to  measure  the  value  of  luxuriese 

A  man  with  a  surplus  of  necessaries  can,  as  we  have  seen, 
enjoy  leisure,  yet  he  may  sacrifice  this  in  order  to  produce 
a  luxury  for  himself,  and  this  sacrifice,  or  his  cost  of  production, 
is  just  his  consumption  of  necessaries  while  producing  the 
luxury.  The  value  of  these  necessaries  consumed  is,  as  we 
showed,  measured  directly  by  our  unit  of  value  N,  but  as  we 
cannot  measure  the  man's  pleasure  at  the  possession  of  the 
luxury,  we  can  only  say  that  the  value  thereof  depends  upon 
'the  man's  opinion,  or  '  demand,'  which  is  shown  by  the  amount 
of  necessaries  he  is  prepared  to  sacrifice  in  order  to  obtain  it. 
The  value  of  luxuries,  therefore,  is  only  relative  to  that  of 
necessaries.  For  instance,  a  man  producing  a  luxury  may 
be  delighted  with  the  result  of  his  labours,  although  his 

37 


THE  REAL  WEALTH  OF  NATIONS 

neighbours  may  laugh  at  him  ;  on  the  other  hand  he  may  be 
disgusted  and  his  neighbours  astonished.  Alternatively,  he 
might  be  delighted  at  first,  yet  subsequently  get  tired  of  his 
luxury.  Evidently  there  is  here  no  constant  value  ;  in  fact, 
luxuries  have  no  economic  value,  for  one  cannot  measure 
pleasure* 

We  saw  also  in  Chapter  III  that  the  cost  of  producing 
necessaries  is  the  consumption  thereof  in  so  doing  ;  and  that 
the  wealth  produced  is  the  balance  of  production  over  con- 
sumption. Likewise  the  cost  of  producing  luxuries  is  the 
amount  of  necessaries  consumed,  and  therefore  it  falls  also 
as  the  efficiency  of  production  of  the  latter  rises.  Neverthe- 
less, it  is  impossible  to  say  what  increase  of  wealth  is  repre- 
sented by  the  luxury  produced,  or  even  that  there  is  any 
increase  in  wealth  at  all. 

For  instance,  a  beautiful  pearl  is  a  pure  luxury,  having 
no  intrinsic  value  whatever,  and  its  man-cost  of  production 
is  the  consumption  of  necessaries  of  life  by  the  pearl-fishers, 
perhaps  for  many  months.  Now,  who  can  say  that  the 
world  is  richer  for  that  pearl,  or  that  the  woman  who  possesses 
it  is  better  or  happier  therefor  ?  If  the  pearl  should  be 
lost,  the  world  would  wag  on  as  before,  for  there  would  be 
no  loss  of  economic  wealth.  There  are,  indeed,  three  parties 
to  be  considered  :  the  pearl-fishers,  the  lady,  who  are  both 
presumably  satisfied,  and  the  producers  of  necessaries,  who, 
although  blind  to  the  fact,  lose  because  they  must  work  longer 
hours  in  order  to  provide  the  pearl-fishers  with  necessaries. 
Had  these  men  produced  their  own  necessaries  instead  of 
searching  for  pearls,  a  shorter  average  working  day  and  more 
leisure  for  all  could  have  resulted. 

Similarly,  there  are  numerous  other  luxuries,  such  as 
artificial  jewellery,  articles  of  vogue,  etc.,  upon  which  much 
labour  is  expended  without  its  being  possible  to  show  that 
the  world  is  wealthier  or  happier  for  their  creation. 

It  is  evident  that  a  man  with  a  store  of  luxuries  is  not  in 
so  safe  a  position  as  one  with  a  surplus  of  necessaries,  for  so 
long  as  the  latter  can  be  preserved,  they  do  not  lose  their 
value,  whereas  that  of  the  luxuries  may  disappear  in  a  night 

38 


NECESSARIES  AND  LUXURIES 

owing  to  a  change  of  fashion  ;  thus,  we  may  recapitulate  : 
man  lives  on  necessaries  and  enjoys  luxuries,  but  he  cannot 
measure  his  pleasure. 

We  can  hear  the  reader  declaring  that  what  is  a  luxury 
for  one  man  is  a  necessary  for  another ;  but  first  we  are  con- 
sidering the  average  man  not  used  to  luxuries  (and  of  what 
little  importance  they  are  is  illustrated  by  the  health  of  armies 
in  the  field)  or  pampered ;  and,  secondly,  we  consider  every- 
thing a  luxury  that  is  unessential  to  keep  him  in  health  and 
strength  and  fit  to  propagate  and  rear  equally  healthy  children. 
If  a  man  will  not  eat  potatoes  he  must  take  some  other  nourish- 
ment instead — as,  indeed,  he  did  before  Sir  Walter  Ralegh 
introduced  them ;  and  if  he  cannot  digest  any  vegetable  except 
asparagus,  nor  any  fruit  save  peaches,  he  may  have  to  eat 
an  enormous  quantity,  and  will  certainly  have  to  pay  an 
excessive  price  for  his  necessary  nourishment,  although  the 
amount  of  nourishment  required  by  the  average  man  remains 
the  same. 

When  we  consider  the  price  of  man's  daily  necessaries  of 
life  we  must  take  those  articles  which  on  the  average  yield 
the  greatest  amount  of  nutriment  per  hour's  labour  expended 
in  producing  them,  for  it  is  of  these  that  the  price  is,  or  should 
be,  the  lowest  and  on  such  that  the  less  fortunate  must  live. 
What  the  rich  live  upon  is  of  no  economic  importance  pro- 
viding they  do  not  waste,  overeat,  or  overdrink,  for  that  means 
longer  hours  of  labour  for  others ;  and  it  is  right  for  the  rich 
to  spend  their  money  on  luxuries,  so  long  as  the  production 
of  these  does  not  entail  excessive  labour,  when  it  should  be 
forbidden,  but  wrong  for  them  to  eat  common  necessaries 
at  a  time  of  scarcity. 

Although  we  have  referred  to  articles  as  being  either 
necessaries  or  luxuries,  most  luxuries,  such  as  cakes,  jam, 
beer,  oysters,  peaches,  etc.,  obviously  support  human  life 
to  some  extent,  and  therefore  have  a  value  as  necessaries, 
in  addition  to  their  value  as  luxuries.  Consequently,  we 
must  recognize  two  distinct  values  in  almost  every  article : 
first,  as  a  necessary  which  supports  human  life  or  saves  labour ; 
and,  secondly,  as  a  luxury  which  affords  gratification.  The 

39 


THE  REAL  WEALTH  OF  NATIONS 

'  luxury  '  value,  therefore,  of  any  commodity  is  that  which 
is  not  a  '  necessary '  value ;  and,  having  defined  the  latter, 
the  former  is  thereby  also  determined.  We  must  therefore 
always  distinguish  as  well  between  '  demand  '  or  '  luxury  ' 
value,  and  '  intrinsic  '  or '  necessary  '  value,  as  between  '  JOY  ' 
wealth,  consisting  of  luxuries,  and  '  ECONOMIC  '  wealth,  con- 
sisting of  necessaries  and  labour-saving  devices ;  and  never  the 
twain  shall  meet. 

We  have  explained  at  length  the  distinction  between 
'  necessary '  and  '  luxury  '  values,  because  it  is  as  essential 
to  an  appreciation  of  the  real  principles  of  Economics  as 
knowledge  that  the  earth  is  round  is  to  progress  in  the  science 
of  astronomy. 

Further,  the  practical  importance  of  this  distinction  arises 
from  the  fact  that  without  it  we  cannot  measure  the  value 
of  wealth,  so  soon  as  it  is  produced,  and  consequently  we  are 
unable  to  recognize  the  merits  of  its  producers ;  indeed,  we 
make  bold  to  state  that  in  this  inability  lies  the  origin  of  our 
present  industrial  chaos. 

In  a  school,  for  instance,  the  master  endeavours  to  form 
from  results  some  idea  as  to  the  merits  of  his  pupils,  for,  were 
he  unable  to  do  so,  and  to  reward  the  best,  all  inducement 
to  improvement  would  be  lost,  and  a  premium  be  offered  to 
inefficiency  and  laziness.  Similarly,  it  is  the  first  duty  of 
every  statesman  to  know  how  to  measure  wealth,  because 
otherwise  he  cannot  recognize  the  producer  nor  judge  as  to 
the  distribution  of  the  resulting  wealth. 

It  is  obvious  that  all  men  are  not,  and  can  never  be, 
equal,  and  therefore  not  equally  capable  of  producing  wealth, 
and  if,  as  suggested  by  pseudo-socialists,  all  wealth  should 
be,  notwithstanding,  equally  distributed  (when  there  would 
nevertheless  still  exist  rich  and  poor,  because  some  men  save 
and  others  waste),  the  result  would  be  also  the  encouragement 
of  inefficiency  and  vice,  the  downfall  of  civilization,  and  our 
reduction  to  the  level  of  monkeys,  who  are  all  equal  and  have 
equally  no  wealth. 

It  is  clear,  therefore,  that  all  man-wealth  whatsoever  in 
the  world,  be  it  material  commodities,  works  of  art,  or  leisure 
40 


NECESSARIES  AND  LUXURIES 

in  which  to  enjoy  them  and  the  beauties  of  Nature,  is  due  to 
the  skill  or  brains  of  man,  although  the  converse,  that  all 
brains  produce  wealth,  obviously  does  not  hold  good.  The 
importance  of  this  truth  cannot  be  over-estimated,  for  the 
discontent  rife  throughout  the  world  is  based  on  the  claim 
that  labour  produces  wealth,  and  is  therefore  robbed  of  its 
just  reward. 

We  shall  disclose  the  origin  of  this  contention  in  a  later 
chapter,  but  its  fallacy  can  readily  be  seen  from  a  practical 
example.  An  unskilled  labourer  working  on  a  turret  lathe 
may  produce  1000  parts  per  hour ;  he  imagines  that  this 
output  is  due  to  him,  yet  as  it  is  obvious  that  without  the 
machine  he  could  only  produce,  say,  two  parts  per  hour, 
998  parts  must  be  due  to  the  skill  and  brains  embodied  in  the 
machine,  and  those  of  the  tool-makers.  The  unskilled  man 
would  obviously  retort  that,  without  him,  this  production 
would  cease,  yet  not  merely  is  this  equally  true  of  the 
lubricating  oil,  but  without  him  there  would  also  be  less  con- 
sumption, leaving  more  wealth  per  head  for  the  skilled  men, 
who  can  always  replace  the  unskilled. 

The  inherent  truth  of  this  argument  is  still  more  apparent 
when  we  remember  that  the  turret  lathe  can  be  replaced 
by  an  '  automatic '  machine,  embodying  still  more  brains 
and  skill,  which  might  actually  produce  4000  of  the  same 
parts  per  hour,  without  any  unskilled  labour  at  all ! 

Having  proved  that  the  existence  of  all  the  wealth,  well- 
being,  and  happiness  with  which  we  are  concerned  is  due  to 
man's  own  skill,  we  must  consider  next  how  this  quality  in 
man  can  be  most  readily  developed. 


CHAPTER   V 

THE  SUBDIVISION  OF  LABOUR  AND  THE  EXCHANGE 
OF  WEALTH,  OR  TRADE 

"W"1T  TE  have  shown  how   men   can    produce  wealth   by 

%^k  /  applying  to  Nature's  wealth,  or  capital,  their  own 

y    Y     quality,  i.e.,  skill,  and  when  men  saw  that  a  greater 

wealth-production    in  a  given   time    followed  an   increase  in 

skill,    they   realized   its   importance   and  became   aware   that 

a  higher  degree  was  attainable  by  keeping  to  one  job,  or  by 

learning  a  trade.     Hence  the  English  proverbs  :  "  The  cobbler 

should  stick  to  his  last,"  and  "  A  Jack  of  all  trades  and  master 

of  none." 

The  principle  of  subdivision  of  labour  was  therefore 
adopted  in  the  earliest  times.  In  an  army,  for  instance,  each 
man  was  not  trained  to  every  job,  and  in  the  fields  some  used 
their  implements,  others  looked  after  the  oxen  ;  in  fact,  sub- 
division of  labour  appeared  as  soon  as  there  was  communal 
life,  and  certainly  without  appreciation  of  the  fact  that  it 
was  economically  desirable.  Even  the  animals  follow  the 
principle  ;  the  male  and  female  have  different  characteristics, 
and  assume  different  responsibilities. 

Subdivision  of  labour  being  natural  and  beneficial  to 
man,  it  cannot  be  the  real  cause  of  monotony  or  discontent, 
for,  if  the  production  of  wealth  be  desirable,  it  should  be 
better  and  more  interesting  to  do  one  thing  well  than  many 
badly,  and  the  man  who  prefers  the  latter  course  is  devoid 
of  the  ability  to  appreciate  skill  or  efficiency,  or  his  obligations 
to  his  fellows,  and  is  undeserving  of  any  share  of  wealth.  To 
learn  one  trade  well  and  stick  to  it  should  not  make  men 
narrow ;  on  the  contrary,  if  it  lead  to  a  greater  wealth- 
production,  it  should  give  them  more  time  in  which  they 
42 


THE  SUBDIVISION  OF  LABOUR 

might  improve  themselves  and  widen  their  outlook.  Never- 
theless, if  the  average  man  receive  an  equal  reward  for  doing 
many  things  badly  and  one  thing  well,  he  is  likely  to  prefer 
the  former. 

INDUSTRIAL  FATIGUE. — It  is  undoubted  that  for  every 
man  there  is  a  certain  maximum  efficiency  of  output  or  pro- 
ductive capacity  over  a  period  of  years,  as  compared  with 
intake,  or  consumption. 

Thus,  an  average  showing  the  curve  of  industrial  efficiency 
of  a  particular  race  under  certain  conditions  can  be  arrived  at. 

Now,  a  machine  running  at  a  definite  speed  with  a  definite 
rate  of  feed  would  produce  a  definite  number  of  articles  per 
hour  ;  it  does  not  suffer  from  fatigue,  only  from  wear,  and 
those  who  say  that  modern  industry  tends  to  turn  man  into 
a  machine  have  overlooked  this  essential  difference  and  its 
importance. 

What,  in  any  case,  is  fatigue  ?  There  is  fatigue  of  the 
body,  and  fatigue  of  the  mind.  With  regard  to  the  former, 
man  may  indeed  approximate  to  a  machine,  but  no  figures 
have  shown  or  ever  will  show  that  the  biggest  man  produces 
the  greatest  output,  except  in  special  cases,  and  the  fact  that 
in  our  curves  of  fatigue  we  take  an  average  shows  that  there  is 
an  inequality  in  man — an  inequality  by  no  means  due  only  to 
differences  in  physical  strength. 

It  is  perfectly  clear,  therefore,  that  there  are  two  fatigues, 
and  that  the  most  important  is  that  of  the  mind  or  spirit. 
The  exhausted  but  faithful  horse  will  respond  to  the  call  of 
its  master  for  another  effort ;  a  dog  will  obey  its  master's 
orders,  even  if  it  drop  dead  from  exhaustion  in  the  attempt ; 
but  man  is  master  of  his  own  mind  and  spirit,  and  if  the  great 
men  of  the  world  have  suffered  from  fatigue  of  the  mind, 
have  they  not  fought  and  overcome  it  ? 

Take,  for  example,  Clemenceau  or  Foch  and  their  indomit- 
able spirit  in  the  War  !  Was  it  greed  that  inspired  their 
work,  desire  for  money,  or  power,  or  show,  or  anything  that 
the  pseudo-socialists  pretend  is  the  driving  force  of  humanity 
and  the  cause  of  civilization  ?  A  million  times,  no  !  It  was, 
surely,  that  greatest  of  virtues,  sniffed  at  by  the  '  Intellectuals,' 

43 


THE  REAL  WEALTH  OF  NATIONS 

love  of  country,  or  patriotism.  To  love  your  own  family, 
work  for  them,  protect  them,  is  indeed  worthy,  but  in  so  doing 
man  can  hardly  claim  superiority  to  animals  ;  but  a  nation, 
which  consists  of  an  aggregate  of  families,  can  only  appeal  to 
man's  altruistic  sense,  a  sense  denied  to  animals,  and  patriotism, 
or  love  of  country,  is  one  of  the  lines  of  demarcation  between 
them  and  man. 

It  is  an  undoubted  fact  that  the  deservedly  successfuj  man 
who  has  achieved  success  by  his  own  efforts  has  not  allowed 
fatigue  of  the  mind  to  overcome  him.  Does  this  man,  who 
works  ten,  twelve,  fourteen,  sixteen  hours  a  day,  and  who 
concentrates  all  his  energies  of  mind  and  body  on  what  he  is 
doing,  not  suffer  from  fatigue  ?  Of  course  he  does,  but  he 
thinks  not  about  his  fatigue,  but  about  his  work. 

The  inefficient  and  the  lazy  envy  the  successful  man,  and 
when  a  man  works  hard  but  is  not  successful,  as  often  happens, 
for  there  is  such  a  thing  as  luck,  they  say  he  is  a  fool.  Have 
they  ever  realized  that  a  man  who  does  his  appointed  task  and 
something  over  may  become  in  himself  100  or  1000  men  ? 
That  extra  little  bit  of  work,  day  after  day,  week  after  week, 
year  after  year,  is  the  means  of  storing  in  this  one  man  know- 
ledge and  experience  which  thousands  of  men  together  cannot 
equal.  There  is  no  parallel  in  Nature  because  man's  power  of 
accumulating  knowledge  is  unlimited. 

Returning  now  to  the  curves  of  output  and  fatigue,  instead 
of  accepting  the  average  figure  as  final,  we  ought  to  look  upon 
it  as  a  starting-point  and  endeavour  to  raise  all  men,  not  to 
the  average,  but  to  the  level  of  the  highest.  It  is  merely  a 
question  of  a  man  taking  an  interest  in  his  work.  It  does  not 
seem  natural  to  like  work,  yet  civilization  depends  upon  work, 
and  the  most  civilized  man  is  one  who  has  compelled  himself 
to  overcome  his  natural  disinclination  for  it. 

The  pretence  of  social  reformers  that  machines  have  killed 
the  interest  of  the  workers  will  not  bear  examination,  for  if 
every  man  desired  to  do  his  best  he  would  take  an  interest  in 
his  output,  and  that  of  others,  and  do  his  best  to  increase  it. 

Further,  skilled  artisans  to-day  show  little  better  spirit 
than  labourers,  yet  did  they  realize  that  they  are  among  the 
44 


THE  SUBDIVISION  OF  LABOUR 

wealth-makers,  and  that  all  wealth  is  due  to  skill  and  brains, 
they  would  not  permit  the  unskilled  to  dictate  to  the  rest  of 
the  community  what  should  be  their  share  of  wealth,  in  the 
production  of  which  they  are  the  least  important  factor. 

No !  The  cause  of  the  widespread  industrial  mind- 
fatigue  is  ignorance,  and  the  fact  that  nowadays  a  man  works 
for  a  wage,  and  overlooks  his  obligation  to  produce  an  equi- 
valent value,  imagining  that  only  his  employer  works  for 
profit,  whereas  the  employer  has  first  of  all  to  work  in  order 
to  pay  his  men  their  wages,  which,  when  higher  than  the 
living  wage,  include  their  profit.  The  relation  between  wages, 
work,  and  profit  is,  however,  dealt  with  in  later  chapters. 

SUBDIVISION  OF  LABOUR  NECESSITATES  THE  EXCHANGE 
OF  WEALTH,  OR  TRADE. — In  order,  therefore,  that  men  could 
develop  their  manual  skill,  or  concentrate  their  intelligence 
on  one  problem,  and  thereby  produce  a  greater  value  in  a 
shorter  time,  a  subdivision  of  labour  was  introduced,  whereby 
a  man,  or  a  set  of  men,  instead  of  producing  everything  for 
themselves,  produced  one  thing  only  and  exchanged  all  of  this, 
or  their  surplus,  for  other  commodities. 

The  first  effect  of  the  introduction  of  a  subdivision  of 
labour  upon  our  civilization  is  thus  to  make  exchange  essential, 
exchange  of  goods,  called  trade,  and  exchange  of  labour,  called 
service.  The  exchange  can  be  goods  for  goods,  services  for 
services,  or  goods  for  services.  It  seems  probable  that  the 
last  was  the  first  known  form,  and  that  the  strongest  man 
in  a  community,  or  the  chief  of  a  tribe,  made  others  work  for 
him  as  slaves,  supplying  them  in  return  with  their  necessaries 
of  life  in  order  that  they  could  continue  to  labour  for  him.  The 
first  exchange  of  goods  for  goods  was  probably  a  very  one-sided 
affair,  a  stronger  man  felling  a  weaker  and  helping  himself 
to  his  dinner,  or  a  blow  being  given  in  exchange  for  food ,  and 
the  first  exchange  mentioned  in  the  Bible  is  that  of  Jacob  and 
Esau.  In  ordinary  human  intercourse  the  producer  of  wealth 
must  benefit  by  his  production,  or  he  will  not  produce,  whereas 
an  exchanger  of  wealth  may  lose  through  his  exchange,  and 
consequently  it  is  most  essential  to  investigate  the  laws  which 
do,  or  should,  govern  such  operations. 

45 


THE  REAL  WEALTH   OF  NATIONS 

We  will  examine  first  an  exchange  of  goods  for  goods,  and, 
considering  first  necessaries  or  labour-saving  devices  only, 
return  to  our  grower  of  potatoes  and  maker  of  spades,  and 
investigate  an  exchange  between  the  two.  If  potatoes  be 
again  assumed  to  represent  the  whole  necessaries  of  man,  a 
grower  will  sacrifice  a  number  of  pounds  (or  hours  of  labour)  to 
obtain  a  spade,  but  not  more  than  he  can  recover  from  its  use 
before  it  is  worn  out.  The  maker  of  the  spade  must  likewise 
receive  in  return  therefor  at  least  the  weight  of  potatoes 
which  will  keep  him  alive  while  he  is  making  it. 

If  the  spade  lasts  a  year  and  doubles  the  grower's  output, 
he  will  only  benefit  by  an  exchange  if  he  give  less  for  it  than 
one  year's  production  of  potatoes.  The  maker  of  the  spade, 
if  he  take  a  year  to  make  it,  will  only  benefit  providing  he 
obtain  for  it  more  than  a  year's  supply  of  potatoes,  and  did 
he  not  receive  at  least  enough  potatoes  to  keep  him  alive 
daring  that  time,  he  would  be  better  off  growing  potatoes 
himself.  Whatever  be  the  intrinsic  value  of  the  spade  and 
potatoes  exchanged,  that  party  to  the  exchange  thereof 
evidently  benefits  whose  hours  of  work  are  least  for  the 
production  of  that  value. 

If  the  spade,  although  not  edible,  have  utility  to  man  (i.e., 
increases  the  production  of  potatoes  by  more  than  its  producer's 
consumption  while  making  it),  it  is  better  to  produce  spades 
than  potatoes,  because  the  former  then  represent  more 
intrinsic  value  per  hour's  work.  The  maker  of  the  spade, 
seeing  its  utility,  will  demand  more  potatoes  than  the  equi- 
valent of  his  hours  of  work,  and  if  the  potato-grower  cannot 
make  spades  he  must  agree,  for  he  is  then  evidently  less 
skilled  than  the  spade-maker,  who  must  be  able  to  produce  his 
own  food  (i.e.,  potatoes)  or  starve,  unless  indeed  other  men 
will  support  him. 

Again,  if  two  men  produce  necessaries  of  life,  say  the  one 
potatoes  and  the  other  artichokes,  and  they  wish  to  exchange, 
assuming  that  for  the  same  nutriment  and  weight  the  same 
hours  of  labour  and  the  same  skill  are  necessary,  will  not  a 
fair  exchange  be  pound  for  pound  ?  If  not,  and  two  pounds 
of  potatoes  were  exchanged  for  one  pound  of  artichokes,  the 

46 


THE   SUBDIVISION  OF  LABOUR 

grower  of  the  potatoes  would  have  to  work  more  hours  to  obtain 
his  necessaries.  The  utility  of  the  articles  and  the  time  taken 
in  producing  them  should  thus  determine  the  exchange,  unless 
one  producer  is  to  benefit  at  the  expense  of  another. 

Let  us  assume  now,  however,  that  artichokes  have  double 
the  nutriment  of  potatoes,  and  that  the  labour  per  pound  is  still 
equal.  The  artichoke-grower  need  then  obviously  only  work 
half  the  hours  of  the  potato-grower,  and,  if  he  exchange  pound 
for  pound,  he  will  receive  only  half  the  nutriment  he  gives,  and 
would  have  to  grow  some  more  artichokes  or  starve.  The 
potato-grower,  on  the  other  hand,  would  now  be  able  to  rest, 
as  he  has  obtained  a  surplus  of  nutriment.  To  be  equitable 
the  exchange  should  again  take  place  on  utility,  i.e.,  half  a  pound 
of  artichokes  for  one  pound  of  potatoes,  but  this  time  on  unequal 
hours  of  work,  viz.,  half  a  day's  labour  for  a  whole  day's  labour. 
If  instead  of  artichokes  the  man  produced  a  more  nourishing 
potato,  the  same  would  hold  good,  and  also  if  he  produced  his 
potatoes  in  half  the  time. 

It  is  evident,  therefore,  that  the  artichoke-grower  is  better 
off  than  the  potato-grower  becauses  he  produces  a  higher 
intrinsic  value  per  hour,  and  that  an  exchange  based  on  equal 
intrinsic  value  leaves  both  parties  just  as  well  off  after  as  they 
were  before  the  exchange  took  place,  but  that  the  spade-maker 
and  the  artichoke-grower  are  both  better  off  thereafter  because, 
owing  to  their  more  skilled  production,  they  obtain  more 
potatoes  than  correspond  to  their  own  hours  of  work. 

Should  the  spade-maker  become  very  efficient  he  could 
indeed  afford,  and  might  be  prepared,  to  let  the  potato-grower 
have  a  spade  for  less  potatoes  than  the  equivalent  of  its  in- 
trinsic value.  In  this  event  the  potato-grower  would  benefit, 
and  the  spade-maker  lose  through  the  exchange,  although  so 
long  as  he  obtain  more  potatoes  than  the  equivalent  of  his 
hours  of  work,  the  latter  still  benefits  through  his  production. 
This  argument  is  still  clearer  if  we  imagine  the  case  of  a  man 
inventing  a  more  nourishing  potato  ;  this  man  need  work, 
say,  only  half  the  usual  time  for  his  livelihood,  and  can  then 
either  enjoy  leisure  or  produce  other  wealth. 

In  the  foregoing  we  have  shown  that  an  exchange,  unless  it 

47 


THE  REAL  WEALTH  OF  NATIONS 

benefit  one  party  at  the  expense  of  the  other,  must,  where 
necessaries  of  life  are  concerned,  take  place  on  the  basis  of 
equal  intrinsic  value  ;  but  we  have  considered  only  food,  or 
an  article  for  producing  food,  whose  value  is  measured  in  terms 
of  food,  and  in  Chapter  III  we  saw  that  our  unit  of  intrinsic 
value  (N)  included  not  only  man's  daily  need  in  food,  but  his 
necessary  clothing,  heating,  shelter,  etc.  Now,  although  the 
physiologists  can  decide  the  life-sustaining  power  of  each  of 
the  various  forms  of  foodj  what  is  a  fair  exchange  of,  say, 
clothes  for  food  ? 

It  is  immediately  evident  that  it  cannot  be  Na  for  Nb,  or 
a  day's  supply  of  food  for  a  day's  supply  of  clothes,  because 
not  only  does  the  relation  between  the  two  vary  with  every 
climate,  but  if  the  average  length  of  cloth  worn  out  daily  by 
a  man  were  only  one  inch,  that  might  nevertheless  be  as 
essential  to  his  existence  as  his  day's  food  supply. 

Let  us  visualize  again  simple  conditions  of  life,  where  every 
unskilled  man  produces  everything  he  wants  for  himself.  If 
he  must  work  250  days  per  annum  to  produce  his  food  and 
only  ten  days  to  produce  his  cloth,  his  daily  need  of  cloth  is 
worth  to  him  only  -£j  of  his  food,  for  he  could  produce  it  in 
•gng  of  the  time.  Supposing,  however,  that  a  man  invented  a 
cloth  the  durability  of  which  was  double,  its  relative  value 
would  be  doubled  also,  both  in  comparison  with  other  cloth 
and  with  food. 

The  invention  would  have  been  due  to  brains  or  skill, 
maybe  those  of  one  man  only,  who,  although  demanding  double 
value  at  first,  might  subsequently  show  the  unskilled  how  to 
make  the  improved  cloth.  In  this  event  the  unskilled  food- 
growers  would  refuse  to  supply  double  the  food  quantity,  or 
allow  the  unskilled  cloth-makers  to  be  at  an  advantage,  and, 
if  the 'latter  would  not  compromise,  they  would  and  could 
make  the  cloth  for  themselves. 

Thus,  although  a  fair  rate  of  exchange  is  decided  by  in- 
trinsic value,  this  assumes  equal  working  hours  for  unskilled 
labour,  or  an  equality  of  labour  value,  and  evidently  man's 
progress,  inventions,  and  improvements,  the  result  of  his  mind, 
brains,  and  skill,  profoundly  affect  the  cost  and  conditions 


THE  SUBDIVISION  OF  LABOUR 

under  which  this  intrinsic  value  is  produced.  Although  a 
higher  intrinsic  value  is  in  the  first  instance  due  to  skill, 
which  must  be  rewarded,  when  this  is  thrown  open  to  the 
world,  and  man's  average  degree  of  skill  is  raised,  the  whole 
world  has  the  right  to  this  higher  intrinsic  value,  not  merely 
the  workers  who  happen  to  be  producing  it.  If,  for  example, 
an  invention  enable  us  to  produce  our  necessary  cloth  in  five 
instead  of  ten  days'  work  per  annum,  whereas  food  still  requires 
250  days,  we  should  expect  double  the  output  from  the  still 
unskilled  cloth-makers,  who  have  no  right  to  loaf  or  to  be 
better  off,  and  half  of  them,  being  no  longer  required  to  make 
cloth,  should  be  compelled  to  produce  food  or  other  goods  for 
the  whole  community.  The  relative  intrinsic  value,  or  fair 
exchange  value,  of  Nb  would  then  be  yg-  of  Na. 

It  is  clear,  therefore,  that  an  exchange  based  on  equal 
intrinsic  value  assumes  that  the  same  amount  of  labour  value 
(or  equal  hours  of  unskilled  labour)  is  necessary  to  produce 
it,  or  one  section  of  the  community  would  benefit  at  the 
expense  of  another.  Nevertheless,  skill,  although  relative — 
and  men  can  be  more  or  less  skilled,  even  if  the  expression 
semi-skilled  is  as  inane  as  semi-sane — is  not  a  matter  of  opinion 
but  of  fact,  for  whereas  a  skilled  man  can  replace  an  unskilled, 
the  latter  is  lost  without  the  former  until  he  has  learned  to  be 
skilled.  Intrinsic  value  is  likewise  not  a  matter  of  opinion  but 
of  fact,  and  increases  pari  passu  with  the  skill  required  to 
produce  it,  for  if  a  skilled  worker  produce  a  less  value  per 
hour  than  a  non-skilled  one  he  could  only  be  said  to  possess 
'  unskill.' 

Thus  exchange  value  should  follow  intrinsic  value,  and 
equally  be  measured  by  our  composite  unit  of  value  N,  so 
long  as  the  same  amount  of  skill  or  labour  value  is  necessary 
to  produce  it ;  but  if  unskilled  labour  can  produce  artichokes, 
which  may  have  twice  the  intrinsic  value  of  potatoes  per 
hour's  work,  it  would  be  unfair  for  the  growers  of  the  latter 
to  be  at  a  disadvantage,  nor  would  they  permit  it,  but  grow 
artichokes  themselves.  Nevertheless,  the  intrinsic  value  itself 
of  any  article  is  constant,  and  independent  of  the  amount  of 
labour,  or  cost  of  producing  it,  although  the  fair  exchange 

49 


THE  REAL  WEALTH  OF  NATIONS 

value,  which  is  relative,  depends  upon  this  intrinsic  value  as 
well  as  the  amount  of  unskilled  labour  necessary  to  produce  it, 
and  must  therefore  be  reduced  as  inventions  increase  the 
general  rate  of  production.  As  an  illustration,  we  might  cite 
the  patent  laws,  which  give  an  inventor  a  reward  for  a  term 
of  years,  yet  recognize  that  thereafter  the  whole  community 
must  share  in  the  advantages  of  the  invention. 

Now,  in  practice,  the  exchange  value,  or  price,  of  necessaries 
does  not  generally  correspond  with  the  intrinsic  value,  or 
utility,  or  labour  value  used  in  producing  it,  but  is  more  or 
less  according  to  opinion  or  the  '  demand.'  For  instance, 
the  fact  that  a  potato-grower  urgently  wanted  a  spade  might 
cause  him  to  offer  for  it  a  higher  exchange  value  in  potatoes 
than  corresponded  to  its  intrinsic  value,  so  that  if  one  party 
has  a  '  desire  '  for  the  product  of  the  other,  he  may  be  pre- 
pared to  sacrifice  a  greater  amount  of  his  necessaries,  i.e.,  his 
'  demand '  for  another  necessary  will  increase  its  price  or  ex- 
change value.  The  difference  between  this  exchange  value 
and  the  intrinsic  value  is  therefore  the  demand  value,  which 
equals  the  potato-grower's  loss  and  the  spade-maker's  gain 
through  the  exchange. 

On  the  other  hand,  were  there  little  demand  for  spades, 
their  maker  might  accept  less  potatoes  than  corresponded  to 
their  intrinsic  value,  when  the  exchange  value  of  spades  would 
be  less  than  their  intrinsic  value,  and,  in  spite  of  his  being 
more  skilled,  a  spade-maker  might  be  no  better  or  even  worse 
off  than  the  potato-grower.  This  difference  between  exchange 
value  and  intrinsic  value  can  therefore  be  -f-  or  — ,  and  is 
always  due  to  demand,  which  cannot  affect  the  intrinsic  value, 
although,  if  it  be  negative,  it  can  cancel  it. 

For  instance,  if  there  be  no  demand  for  spades  and  they 
cannot  be  stored,  they  will  be  given  away.  Does  it  follow 
that  the  spades  have  no  value  and  the  spade-maker  is  not 
skilled  ?  Not  at  all.  The  spade  has  the  same  utility  and 
requires  the  same  intelligence  to  make  it.  Conversely,  if 
there  be  a  shortage  of  spades,  their  exchange  value,  or  price, 
goes  up,  but  again  the  potato-grower  cannot  get  any  more  work 
out  of  them.  Demand  can  thus  only  increase  the  exchange 

5° 


THE   SUBDIVISION  OF  LABOUR 

value,  or  price,  of  the  spades,  and  by  the  same  amount  as  the 
exchange  value  of  the  potatoes  is  reduced,  for  more  potatoes 
must  now  be  sacrificed  in  order  to  obtain  a  spade.  There  is 
thus  no  increase  in  total  intrinsic  value  ;  indeed,  were  it 
otherwise,  the  spade-maker  might  go  about  breaking  those 
spades  in  use  in  order  to  increase  the  demand  for  his  stock, 
when  there  would  actually  be  an  increase  in  value,  or  wealth, 
from  destruction  ! 

Neither  exchange  of  wealth  nor  trade  can  therefore  create 
an  increase  in  the  total  intrinsic  wealth  available. 

Again,  demand  does  not  create  the  supply,  for  not  merely 
does  the  first  supply  always  precede  the  demand,  the  produc- 
tion of  the  first  spade  being  due  to  skill  or  brains,  but  the  sub- 
sequent supply  is  due  to  skill  and  labour.  Obviously,  when 
once  spades  were  made  and  used,  it  did  not  require  great 
intelligence  to  see  how  many  would  be  wanted,  and  if  every- 
one turned  to  making  spades,  these  would  find  no  appli- 
cation, and  all  would  soon  be  starving  for  lack  of  potatoes. 
Thus  an  over-production  of  spades  would  be  due  to  stupidity, 
which  might  annul  the  skill  used  in  their  production,  and  even 
a  nation  of  savages  would  have  the  sense  to  see  that  some  men 
must  grow  potatoes  and  some  produce  spades,  and  that  if  the 
spade-makers  found  they  were  producing  too  many,  so  that 
the  exchange  value  was  less  than  the  intrinsic  value,  they  would 
stop  their  production  and  make  something  else,  or  even  grow 
their  own  potatoes.  To  make  an  excess  of  a  perishable  article 
is  to  destroy  wealth  to  the  extent  of  the  cost  of  its  production. 

Let  us  take  another  example.  Suppose  an  improved  spade 
is  invented.  Everyone  wants  it  and  might  be  prepared  to  pay 
for  it  more  than  it  is  worth,  throwing  their  old  spades  away, 
when,  although  the  makers  of  this  new  spade  may  make  a 
fortune,  the  community  will  be  actually  poorer  by  its  appear- 
ance until  the  labour  saved  through  its  use  equals  that  required 
to  produce  the  discarded  spades. 

Thus  demand  neither  creates  supply  nor  wealth,  but 
results  only  in  a  transfer  of  the  latter,  the  demand  value  or  any 
increase  in  the  exchange  value  over  the  intrinsic  value  merely 
benefiting  the  seller  at  the  expense  of  the  buyer. 

51 


THE  REAL  WEALTH  OF  NATIONS 

In  every  transaction  the  party  who  has  contributed  the 
least  labour  to  produce  a  given  exchange  value  will  benefit 
because  of  his  better  production  ;  yet  while  the  intrinsic  value 
of  every  article  is  constant,  the  exchange  value  is  variable, 
partly  due  to  Nature,  but  more  largely  to  man's  greed. 

If  Economics,  or,  properly  speaking,  the  Principles  of  Gov- 
ernment, be  a  science,  its  laws  cannot  be  subject  to  man's 
greed,  and  it  is  contrary  to  ethics  and  the  social  order  that 
such  a  variation  in  exchange  value  should  be  permitted, 
particularly  in  regard  to  man's  necessaries  of  life.  We  shall 
deal  later  with  its  prevention. 

We  have  seen  that  exchange  value,  or  price,  =  intrinsic 
value  +  demand  value,  but  in  practice  it  appears  to  be  the 
cost  and  demand  which  affect  the  price,  although  to  increase 
the  price  on  account  of  the  latter  has  no  justification,  and  is 
merely  a  manifestation  of  man's  frailties,  like  the  desire  to 
steal.  On  the  other  hand,  it  is  evident  that  a  man  cannot 
permanently  sell  at  a  loss,  so  that  the  exchange  value,  or  price, 
must  exceed  the  cost,  or  exchange  value  =  cost  +  profit. 

From  this  it  follows  that  intrinsic  value  -|-  demand  value 
=  cost  +  profit,  or  if  the  intrinsic  value  =  the  cost,  the 
profit  =  the  demand  value.  This  indicates  that  if  our  potato- 
grower  produce  on  an  average  a  value  equal  to  his  bare  daily 
necessaries  of  life  (which  is  his  cost),  yet,  owing  to  demand 
for  potatoes,  receive  in  return  a  greater  value  of  other 
necessaries,  his  profit  is  entirely  due  to  and  exactly  equal  to 
the  higher  price  obtained  through  the  demand. 

It  is  possible  also  for  his  cost  to  be  actually  greater  than 
the  intrinsic  value  he  produces,  when,  if  the  additional  demand 
failed,  he  would  receive  for  his  potatoes  less  necessaries  than 
he  consumed  in  growing  them,  and  would  be  poorer  because 
of  his  inefficient  production. 

If,  however,  our  producer  be  skilled,  e.g.,  a  spade-maker 
or  artichoke-grower,  his  cost  is  less  than  the  intrinsic  value 
produced,  when,  although  the  demand  value  be  nil,  there 
would  nevertheless  be  a  profit  for  the  producer  exactly  equal 
to  the  excess  of  the  intrinsic  value  he  produces  over  that  he 
consumes. 


THE  SUBDIVISION  OF  LABOUR 

Thus,  although  cost  affects  prices  (and  on  the  average  the 
intrinsic  value  produced  must  exceed  the  cost  of  production, 
or  intrinsic  value  consumed,  lest  the  workers  starve),  in  so 
far  as  necessaries  are  concerned,  their  price  should  neverthe- 
less depend  upon  their  intrinsic  value,  and  should  not  be  allowed 
to  vary  constantly,  but  be  fixed  on  the  basis  of  cost,  with  a 
profit  for  the  producer  depending  on  the  intrinsic  value  pro- 
duced, an  allowance  to  cover  bad  years  being  made  where 
necessary  from  a  reserve  built  up  on  favourable  harvests. 

In  the  foregoing  argument  we  have  considered  only 
necessaries  of  life,  and  our  arguments  may  appear,  at  first 
sight,  somewhat  unreal,  because  we  have  been  brought  up 
to  take  necessaries  for  granted,  and  to  dwell  continually  upon 
luxuries.  The  fact  is  that  we  want  luxuries,  whereas  we  have 
to  have  necessaries.  Only  the  very  poor,  who  have  had  no 
opportunity  to  study  the  principles  of  economics,  are  grateful 
for  their  daily  necessaries.  So  soon  as  babyhood  is  passed, 
the  child  wants  luxuries.  Not  for  him  bread,  bread  and  butter, 
and  milk  puddings,  but  cake,  jam,  and  tarts  ;  in  fact,  in  many 
households  he  has  to  be  bribed  to  take  his  necessaries  of  life. 
The  same  lack  of  appreciation  is  apparent  as  regards  other 
commodities  than  food  and  drink,  and  unquestionably  in  this 
respect  "  the  child  is  father  of  the  man,"  particularly  of  many 
economists.  But  it  is  only  after  man's  necessaries  are  avail- 
able, or  in  sight,  that  he  can  produce  luxuries,  and  although 
most  of  these  have  some  utility  or  intrinsic  value,  their  high 
price  or  exchange  value  is  due  to  demand,  or  it  may  be  only 
to  fashion.  The  world  lives  on  necessaries,  it  enjoys  luxuries, 
and  the  value  to  man  of  a  pure  luxury,  such  as  a  pearl  or  a 
beautiful  picture,  depends  solely  upon  his  opinion,  which 
changes  from  day  to  day.  Whereas  our  unit  N  measures 
the  value  of  all  necessaries  and  utilities,  who  can  measure 
the  gain  to  the  world  through  the  painting  of  a  masterpiece  ? 
Consequently  wealth  due  to  the  existence  of  luxuries,  or 
joy-wealth,  cannot  be  measured,  except  relatively  to  that  of 
necessaries,  although  it  can  be  exchanged. 

Thus,  in  an  exchange  of  luxuries  for  luxuries  it  is  impossible 
to  say  what  is  a  fair  exchange,  or  who  has  got  the  better  of  it. 

53 


THE  REAL  WEALTH  OF  NATIONS 

If,  however,  we  consider  a  producer  of  a  pure  luxury  who 
desires  necessaries,  the  amount  of  the  latter  he  will  receive 
in  exchange  will  depend  entirely  upon  the  demand  for  his 
luxury,  or  its  exchange  value  =  its  demand  value.  If  there 
be  no  demand,  the  luxury  has  indeed  no  value,  but  then  it 
never  could  of  itself  acquire  any  real  value,  for  were  all  the 
articles  of  pure  luxury  in  the  world,  such  as  pearls  or  artificial 
jewellery,  thrown  into  the  sea,  it  would  be  impossible  to  say 
by  how  much  humanity  was  poorer,  or  whether  it  was  poorer 
at  all.  On  the  other  hand,  if  a  man  produce  a  necessary  and 
no  one  wants  it,  providing  it  can  be  stored,  he  can  use  it  himself, 
thereby  enjoying  leisure,  or  producing  luxuries.  The  demand 
therefore  increases  the  exchange  value  of  a  luxury,  yet  this 
is  offset  by  the  greater  amount  of  necessaries  sacrificed  to 
obtain  it,  and  the  total  value  in  existence  remains  unaltered. 
For  instance,  if  a  potato-grower  buy  a  picture  and  give  for  it 
one  ton  of  potatoes,  both  parties  may  be  perfectly  satisfied, 
but  both  are  not  richer.  If  the  picture  be  a  poor  one  and 
only  the  potato-grower's  bad  taste  made  him  buy  it,  he  may 
still  be  satisfied  with  his  bargain,  although  if  he  try  to  sell 
the  picture  he  can  get  no  offer  for  it.  His  loss  is,  then,  that 
ton  of  potatoes  which  the  artist  has  gained.  On  the  other 
hand,  if  he  re-sell  his  picture  and  obtain  the  equivalent  intrinsic 
value  of  two  tons  of  potatoes,  he  is  richer  by  one  ton,  but 
the  painter  is  poorer  by  one  ton  than  if  he  had  sold  direct  to 
the  second  party,  but  so  long  as  he  is  unaware  of  the  fact  he 
is  quite  content. 

In  the  case  of  this  picture,  the  exchange  value,  or  price,  = 
the  demand  value,  which  benefits  the  painter  at  the  expense 
of  the  potato-grower,  and  if  no  one  will  buy  his  picture,  the 
painter  may  die,  although  the  same  wealth,  i.e.,  the  picture, 
be  in  existence. 

When  we  consider  the  cost  of  production  it  is  probable  that 
the  artist  is  better  off  by  the  exchange  (and  artists  generally 
either  do  very  well  or  starve),  because  he  expends  fewer  labour- 
hours  to  produce  his  picture  than  were  required  to  grow  a  ton 
of  potatoes.  Or  again,  when  a  potato-grower  buys  a  fashion- 
able hat  for  his  wife,  he  sacrifices  much  labour  for  little  labour 

54 


THE  SUBDIVISION  OF  LABOUR 

and  much  intrinsic  value  for  little  intrinsic  value,  and  loses 
wealth  on  the  exchange,  but  is  nevertheless  satisfied,  notwith- 
standing that  the  designer  of  the  hat  has  the  better  of  the  bargain. 

We  see,  therefore,  that  whereas  in  an  exchange  of  necessaries 
that  producer  in  the  end  should  benefit  who  produces  the 
higher  intrinsic  value  per  hour,  in  the  case  of  luxuries  one  can 
only  consider  the  exchange  value  ;  and  although  it  is  very 
profitable  to  produce  luxuries,  should  the  demand  cease  for 
them,  the  whole  cost  of  their  production  would  be  wasted,  so 
that  it  is  safer  to  produce  necessaries,  especially  if  they  can  be 
stored.  Further,  the  real  cost  of  producing  luxuries  is  also 
measured  solely  by  the  amount  of  necessaries  consumed  during 
the  process. 

We  considered  above  a  picture,  or  a  luxury  with  no  in- 
trinsic value,  because  the  truth  is  then  more  easily  visible, 
but  it  is  equally  demonstrable  where  the  article  contains  an 
intrinsic  value  also.  Diamonds  have  an  intrinsic  value  for 
cutting  glass  or  as  bearings  for  watches,  etc.,  and  a  Rolls- 
Royce  car  has  utility  in  its  labour-saving  capacity.  Con- 
versely, a  machine-tool  is  finished  off  nicely  to  make  it  sell, 
and  apples  are  polished  to  make  them  attractive  in  the  green- 
grocer's window.  The  price  of  a  motor  car  is  its  intrinsic 
value  +  a  demand  value  depending  on  appearance,  reputation, 
and  number  of  cars  available.  The  price  of  the  machine-tool 
may  be  higher  than  that  of  a  finer  one  which  is  not  so  nicely 
finished,  and  the  price  of  the  apples  inside  the  shop  is  higher 
because  those  in  the  window  induce  you  to  think  that  the  bulk 
are  equal  to  what  the  latter  appear.  Thus,  our  equation 
exchange  value  =  intrinsic  value  +  demand  value  is  uni- 
versally applicable  whether  the  demand  be  due  to  shortage 
or  to  fashion. 

It  cannot  be  over-emphasized  that  there  is  an  eternal  dis- 
tinction between  necessaries  and  luxuries,  or,  better,  between 
the  '  necessary '  and  *  luxury  *  value  in  all  articles  whatsoever, 
and  that  it  is  of  vital  importance  for  the  exchange  value  of 
necessaries  to  be  maintained  as  near  to  their  intrinsic  value  as 
possible,  after  allowing  for  a  definite  profit  for  the  producer. 
Liberty  to  raise  prices  on  account  of  a  shortage  of  articles 

55 


THE  REAL  WEALTH  OF  NATIONS 

essential  to  man's  existence  is  a  crime  against  humanity, 
camouflaged  under  the  so-called  *  law  of  supply  and  demand.' 
Many  even  of  those  who  profess  to  be  able  to  love  the  whole 
world  believe  in  this  '  law,1  which  is  force  naked  and  un- 
ashamed, far  more  barbarous  than  war,  in  which  the  other 
side  has  some  chance,  and  if  it  be  right  for  a  set  of  men  to  hold 
up  the  community  to  ransom,  man  has  indeed  no  obligation 
to  his  fellow-men,  and  civilization  is  non-existent.  Why, 
feudalism  is  far  preferable  to  the  law  of  supply  and  demand 
(for  the  dependents  were  not,  as  a  rule,  starved),  which,  mas- 
querading as  liberty  (its  full  title  is  "  giving  free  play  to  the 
law  of  supply  and  demand  "),  is  the  worst  form  of  tyranny 
humanity  has  ever  suffered.  The  commercial  tyrant  has  done 
no  good  in  the  world,  although  doubtless  ignorant  of  the  harm 
he  has  wrought,  while  many  a  despotic  ruler  has  left  a  bene- 
ficent mark  on  civilization,  and  his  people  better  off,  for  he 
could  see  the  effect  of  his  actions,  and  was,  perchance,  human. 

If  necessaries  are  the  first  consideration,  and  at  least  no 
sociologist  dare  deny  it,  the  way  to  ensure  a  sufficient  supply 
is  for  the  nation,  i.e.,  the  Government,  to  guarantee  to  the 
producers  a  profit,  divisible  among  all,  to  be  enlarged  as  the 
efficiency  of  the  workers  increases. 

There  need  be  no  excess  in  the  production  of  necessaries 
which  cannot  be  stored,  for  even  the  early  Britons  must  have 
known  how  much  food  they  ought  to  grow,  it  being  merely  a 
question  of  population,  and  no  one  would  want  or  should  be 
allowed  to  waste  his  labour  in  producing  food  or  necessaries 
which  will  never  be  used.  With  common-sense  organization, 
if  a  country  were  self-contained,  the  price  and  cost  of  its 
necessaries  would  be  practically  constant,  assuming  an  unaltered 
efficiency. 

On  the  other  hand,  people  can  protect  themselves  in  respect 
of  luxuries,  because  the  value  of  these  being  a  matter  of 
opinion,  the  same  must  also  apply  to  the  price  ;  if  this  be 
thought  too  high,  people  say  that  the  value  is  bad  and  go 
without  the  luxury. 

The  essential  difference  between  necessaries  and  luxuries 
cannot  be  exaggerated.  A  change  of  fashion  can  destroy  the 


THE  SUBDIVISION  OF  LABOUR 

whole  value  of  a  luxury  in  a  night,  but  it  never  had  any  real 
value,  while  no  opinion  of  man  affects  the  intrinsic  value  of 
his  necessaries  of  life.  For  instance,  the  value  of  a  picture  is 
variable  and  may  become  nil,  but  if  so  there  is  no  waste  to  be 
made  good  before  the  world's  wealth  is  again  increased,  and 
whether  an  artist  paint  a  masterpiece  or  a  daub  is  of  little 
economic  importance,  for  there  is  more  economic  loss  in  the 
destruction  of  ten  tons  of  potatoes  than  there  would  be  in  that 
of  the  Venus  of  Milo,  although  one  is  replaceable  and  not  the 
other.  The  world  is,  indeed,  not  richer  economically  for  a 
masterpiece ;  in  fact,  it  is  poorer  by  the  artist's  necessaries  of  life. 

The  economic  wealth  of  the  world  is  measured  solely  by 
the  total  intrinsic  value  contained  therein,  for  pleasure  and 
beauty  cannot  be  economically  measured,  and,  as  shown  in 
Chapter  III,  the  annual  value  of  the  necessaries  of  the  in- 
habitants of  the  United  Kingdom  alone,  which  is  independent 
of  demand,  exceeds  £1,000,000,000. 

The  recognition,  or  otherwise,  of  wealth  does  not  affect  its 
existence,  and  to  ignore  the  gifts  of  Nature  merely  leaves 
wealth  potential  instead  of  actual.  For  instance,  the  world 
to-day  is  richer  by  the  food  value  of  bananas  placed  upon  the 
market,  less  the  necessaries  consumed  by  those  concerned  in 
the  growing  and  handling  of  this  fruit.  Twenty-five  years 
ago  the  banana  represented  potential  wealth. 

Disregard  of  the  distinction  between  *  necessary '  and 
'  luxury  '  value  accounts  for  the  extraordinary  delusion  that 
exchange,  or  trade,  or  anything  but  production,  can  produce 
wealth,  and  for  definitions  such  as  the  following,  from  a  pro- 
fessor of  unimpeachable  authority  :  "  Value  is  governed  by 
the  relation  of  demand  to  aggregate  costs  of  production,  the 
chief  of  these  being  labour  by  hand  or  head,"  from  which, 
assuming  either  factor  alternately  constant,  on  the  one  hand 
an  infinite  demand  and  on  the  other  an  infinitely  small  cost 
(or  is  it  just  the  reverse  ?)  can  create  an  infinite  value  for  a 
worthless  article.  And  Economics  is  termed  a  science  ! 

If  the  statement  of  the  economists,  that  all  value  is  due 
to  recognition  or  demand,  be  correct,  at  what  moment  does 
value  appear  ?  If  on  the  instant,  it  cannot,  after  all,  be  due 

57 


THE  REAL  WEALTH  OF  NATIONS 

to  labour  !  For  example,  in  buying  food,  at  what  moment 
is  the  value  realized,  before  or  after  it  is  cooked  ?  before  or 
after  it  is  eaten  ?  Wealth  being  measured  by  value,  if  this  be 
due  solely  to  demand,  a  lunatic  crying  for  a  toy  creates  wealth, 
whereas  he  is  merely  prepared  to  sacrifice  much  accumulated 
wealth  in  return  for  little  ;  or,  again,  the  destruction  of  one 
article  out  of  two  might  make  the  remaining  one  more  than 
twice  as  valuable,  and  add  to  the  wealth  of  the  world,  whereas 
there  is  an  economic  loss  in  any  intrinsic  value  destroyed. 

The  real  value  of  food  to  a  man  does  not  depend  upon  what 
he  is  prepared  to  exchange  for  it,  and,  should  he  be  starving, 
so  that  one  potato  will  save  his  life  and  he  is  ready  to  sacrifice 
all  his  possessions  to  obtain  it,  the  result  is  an  unfair  advan- 
tage to  the  seller,  but  there  is  no  enhancement  of  intrinsic  value. 
Indeed,  that  potato  will  only  keep  the  man  alive  for  the  few 
hours  equivalent  to  its  intrinsic  value,  when  he  will  be  starving 
again,  so  that  he  has  to  be  saved  once  more,  unless  he,  now 
ruined,  be  then  able  to  feed  himself.  Further,  his  life  may  be 
of  no  economic  value  whatever  to  the  nation  or  the  world,  as, 
for  instance,  if  he  were  ninety  years  old. 

Again,  if  one  potato  be  worth  £1000  becauses  it  saves 
a  starving  man,  as  suggested  by  our  leading  '  Intellectual ' 
economist,  the  first  mouthful  must  be  equally  valuable,  and 
also  the  first  infinitely  small  atom  which  passes  his  lips,  so 
that  this  would  have  a  finite  value,  which,  as  every  mathema- 
tician knows,  is  impossible.  Yet  on  such  fallacies  is  founded 
the  jargon  of  economists.  No  wonder  that  Economics  has 
remained  'the  dismal  science,'  and  that  its  true  principles  are 
unrecognized  by  politicians. 

The  measurement  of  wealth  is,  as  we  have  already  shown, 
a  vital  question,  for  otherwise  we  shall  know  neither  to  whom 
it  is  due,  how  to  increase  its  supply,  nor  how  to  apportion  it, 
and  we  repeat  that  value  is  not  governed  by  labour  at  all,  but 
in  the  case  of  intrinsic  value,  or  necessaries,  measured  by 
utility  or  our  unit  JV,  and  in  that  of  demand  value  or  luxuries 
by  man's  opinion.  Hence  the  less  labour  used  in  all  production 
the  better,  the  only  relation  between  it  and  value  being  found 
in  the  fact  that  in  the  case  of  necessaries  the  intrinsic  value 


THE  SUBDIVISION  OF  LABOUR 

produced  must  at  least  equal  that  consumed,  otherwise  the 
rest  of  the  community  suffers,  and  that  in  the  case  of  luxuries 
continuous  production  is  impossible  unless  the  exchange  value 
of  the  article  produced  is  at  least  equal  to  the  price  paid  for 
that  labour. 

Thus  the  sole  object  of  a  subdivision  of  labour  is  the 
production  of  a  greater  value  in  a  shorter  time,  and  as  wealth 
exists  so  soon  as  the  goods  are  produced,  the  necessary  exchange 
can  in  no  wise  effect  a  further  increase. 


59 


CHAPTER   VI 

THE  NECESSITY  FOR  HANDLERS  OF  WEALTH  AND  THEIR 
ESSENTIAL  DIFFERENCE  FROM  PRODUCERS 

SUBDIVISION  of  labour  increases  wealth-production  by 
allowing  men  to  concentrate  on  one  job  and  become 
skilled,  but  as  the  value  of  necessaries  is  decided  by 
their  power  to  support  human  life  whereas  that  of  luxuries  is 
only  relative  thereto,  its  consequence,  exchange  of  wealth,  or 
trade,  cannot  increase  the  total  value  of  that  wealth,  .and 
merely  causes  its  transfer.  In  fact,  as  we  shall  see  below, 
when  goods  are  once  produced  their  exchange  must  decrease 
the  total  wealth  available. 

We  referred  in  the  previous  chapter  to  the  exchange  of 
goods  for  services,  but  under  primitive  conditions,  except  for 
menials,  practically  all  men  were  engaged  in  production, 
whereas  to-day,  of  those  employed  in  services,  domestic  servants 
form  only  a  small,  though  necessary,  section. 

When  men  engaged  in  production  exchange  their  labour 
for  goods,  the  value  of  their  services  and  the  fairness  of  the 
exchange  is  decided  by  the  intrinsic  value  of  what  they  produce, 
or  their  relative  skill.  We  will  therefore  now  consider  the 
services  of  non-producers,  brought  into  being  by  trade,  and  a 
further  subdivision  of  labour  whereby  some  men  are  engaged 
solely  in  handling  goods. 

We  have  seen  that  the  production  of  wealth  is  due  to  skill 
and  brains,  and  that  the  amount  or  quality  produced  is  a 
measure  of  the  skill  or  brains  employed,  but  it  does  not  follow 
that  skill  and  brains  may  not  be  advantageously  employed 
in  trade  even  though  they  produce  no  wealth. 

We  stated  above  that  the  exchange  of  goods  actually 
decreases  the  total  wealth  available,  and  this  is  due  to  the  fact 
60 


HANDLERS   OF  WEALTH 

that  the  non-producers  have  to  be  fed,  clothed,  and  housed  by 
the  producers,  e.g.,  the  transport  workers  who  load  and  forward 
potatoes  in  bulk  also  eat  them,  for  although  they  may  not 
pilfer  the  trucks,  they  too  must  live. 

It  is  evident,  therefore,  that  as  these  men  eat  more  or  less 
potatoes  per  ton  of  goods  transported,  and  that  as  the  less 
they  eat  the  more  is  the  wealth  available,  a  high  efficiency  in 
labour  of  all  those  engaged  in  trading  operations,  by  reducing 
the  consumption  of  necessaries,  is  equivalent  to  producing 
them.  Nevertheless,  just  as  the  unskilled  producer,  without 
the  assistance  of  implements  due  to  generations  of  skill  or 
brains,  cannot  of  himself  produce  wealth,  except  in  very  fertile 
climates,  and  then  not  much,  and  by  working  harder  or  more 
efficiently  can  increase  the  supply  only  in  direct  proportion 
to  such  effort,  whereas,  with  less  labour  applied,  an  invention 
can  double  the  value  produced,  so  the  actual  transport 
workers  cannot  save  much  labour  although  there  be  no  limit  to 
the  amount  of  necessaries  they  can  waste  through  inefficiency. 

In  fact,  there  is,  on  the  whole,  and  relatively,  but  little 
skill  in  handling  goods,  or  in  any  trading  operations.  It  is  true 
that  those  directing  them  must  have  intelligence  and  powers  of 
organization,  but  a  few  such  men  can  control  thousands  of 
workers,  and  even  they  cannot  compare  in  superiority  with 
the  master  producers.  As  for  the  other  workers  engaged  on 
production,  a  large  factory  generally  requires  the  brains  and 
skill  of  a  large  number  of  specialists — that  is,  men  who  have 
spent  laborious  days  and  nights  in  mastering  the  technicalities 
or  science  of  the  particular  industry  and  in  keeping  abreast  of 
developments — whereas  a  handful  of  men  can  control  the  sale 
of  the  output,  if  it  be  wanted,  and  the  intelligence  required 
from  the  employees  of  traders  is  incomparably  less.  There  is 
absolutely  no  comparison  between  the  quality  of  the  leaders  and 
that  of  the  rank  and  file,  of  producers  and  of  handlers  of  wealth, 
and  this  must  be  so,  man's  glory  being  the  power  to  create. 

Subdivision  of  labour  necessitates  exchange  of  wealth  or 
trade,  and  therefore  also  wealth-handlers  engaged  in  trading 
operations,  the  justification  for  whom  is  an  all-round  economy 
in  production ;  and  there  are  others,  such  as  shopkeepers, 

61 


THE  REAL  WEALTH  OF  NATIONS 

wholesalers,  and,  of  course,  some  merchants,  who  handle 
finished  articles,  and  whose  work  is  to  make  goods  accessible. 
Nevertheless  there  are  many  of  these  for  whose  existence  there 
is  no  economic  justification. 

For  example,  a  town  has  a  number  of  grocers'  shops  which 
meet  all  needs  of  the  inhabitants  and  make  good  profits.  A 
new  shop  is  now  fitted  up  and  filled  with  similar  goods,  but 
other  shop  assistants.  The  real  cost  of  fitting  up  this  shop  and 
the  maintenance  of  the  assistants  falls  on  the  nation's  pro- 
ducers, who  have  now  to  work  longer  hours,  or  can  keep  less  of 
their  produce  for  themselves.  Now  this  new  shopkeeper  must 
draw  custom  away  from  the  other  shops,  whose  assistants  will 
have  more  time  to  waste,  but  will  consume  the  same  amount 
of  necessaries,  and  he  does  this  by  judiciously  cutting  some 
of  the  prices.  To  effect  it  he  may  beat  down  the  producer's 
profits,  or  palm  off  inferior  goods,  or  satisfy  himself  with  a 
smaller  profit  for  a  time.  If  he  adopt  the  last  course  the 
townspeople  are  better  off  by  the  same  amount  as  the  col- 
lective grocers  are  worse  off.  There  is  here,  therefore,  no 
communal  increase  in  wealth,  but  a  destruction  thereof  owing 
to  wasteful  competition,  and  the  saving  of  the  individual 
shoppers  is  effected  in  every  case  either  at  the  expense  of 
the  middlemen,  who  are  generally  prosperous,  or  the  mass  of 
producers. 

There  are  other  classes  of  wealth-handlers  to  whom  a  desire 
to  save  national  wealth  is  not  even  attributed,  but  who  are 
merely  wealth-handlers  for  their  own  profit — thus,  the  Stock 
Exchangers,  many  financiers,  and  quite  a  considerable  pro- 
portion of  those  classes  already  referred  to.  We  will  not  detail 
here  those  engaged  in  foreign  trade,  many  of  whom,  as  we 
shall  see  in  Part  III,  actually  benefit  by  causing  a  loss  to  the 
whole  nation,  but  emphasize  the  fact  that  everyone  nolens 
volens  lives  on  the  producer,  who  must '  economically '  for  ever 
be  the  enemy  of  the  wealth-handler. 

Thus  the  existence  of  handlers  of  wealth    or  middlemen 
is  the  penalty  we  must  accept  for  a  further  subdivision  of 
labour,  and  their  cost  is  the  first  charge  on  any  higher  efficiency 
of  production  which  may  result. 
62 


HANDLERS  OF  WEALTH 

Every  unessential  non-producer  doubly  reduces  the  amount 
of  divisible  wealth,  first  through  being  withdrawn  from  pro- 
duction, and  secondly  by  diminishing  the  amount  the  producer 
may  retain  for  himself. 

If  no  other  justification  for  this  book  existed,  the  pretence 
of  the  middleman  that  he  is  the  best  friend  of  the  producer 
and  consumer  would  provide  it.  We  have  already  seen  that 
the  consumers,  who  of  course  include  all  the  producers,  can 
only  benefit  by  cheap  prices  at  the  expense  of  their  fellows, 
and  while  it  is  true  that  a  middleman,  who  acts  as  a  sole  agent, 
benefits  a  certain  set  of  producers,  even  then  every  order  he 
obtains  for  his  firm  means  a  loss  of  a  corresponding  one  to  a 
competitor.  Thus,  there  is  here  also  no  increase  in  total 
production,  unless  indeed  the  middleman  can  induce  the 
customer  to  buy  what  he  does  not  really  need,  when  there  is 
an  actual  loss  of  wealth,  or  waste,  which  must  be  made  good 
by  the  producers  working  longer  hours. 

And  what  of  the  army  of  middlemen,  the  merchants,  the 
commission  agents,  the  factors,  the  shopkeepers,  etc.,  who 
buy  from  anyone,  and  by  setting  producer  against  producer 
beat  down  their  share  solely  to  benefit  themselves  ?  We  shall 
see  in  Chapter  XI  that  this  applies  to  both  employers  and  their 
employees. 

The  non-producer,  if  he  be  occupied  in  service  as  a  middle- 
man, or  a  carrier,  can  only  help  to  create  wealth  if  he  economize 
its  consumption,  and  not  merely  does  his  profit  represent  a 
loss  to  the  producers,  but  any  unnecessary  increase  in  his 
number,  or  labour,  actually  results  in  a  reduction  in  the  average 
share  of  wealth,  because  its  amount  is  decided  solely  by  the 
producers. 

Now  both  the  production  and  the  handling  of  wealth  are, 
and  always  will  be,  carried  on  for  profit.  The  producer  of 
wealth,  i.e.,  the  man  who  produces  daily  a  greater  value  than 
he  consumes,  originally  claimed  that  he  had  the  right  to  all  of 
it,  but,  although  this  is  no  longer  permissible  in  a  civilized 
community,  no  one  can  deny  that  he  is  entitled  to  retain  some 
share  of  this  increased  production  for  himself,  which  share  we 
term  his  profit. 

63 


THE  REAL  WEALTH  OF  NATIONS 

The  profit  of  a  wealth-producer,  therefore,  is  not  obtained 
at  the  expense  of  the  community,  because  the  latter  is  enriched 
by  the  greater  amount  of  divisible  commodities. 

The  profit  of  the  middleman,  however,  represents  no 
wealth  increase,  but  merely  a  transfer  from  the  producer  to 
himself,  for,  although  he  may  save  some  labour,  that  does 
not  decide  his  profit,  which  may  by  far  exceed  it.  Yet  no  limit 
is  put  on  the  fortune  he  may  amass. 

It  is,  by  the  way,  astonishing  that  the  essential  differ- 
ence between  a  producer  and  a  middleman  is  not  generally 
recognized. 

A  producer,  whatever  his  craft,  sets  out  to  make  the  best 
articles  he  can  for  the  market  which  he  aims  at  supplying.  Has 
anyone  ever  heard  of  an  inventor  trying  to  invent  something 
inferior  ?  The  producer  wants  a  profit  on  his  article,  or  why 
produce  it  ?  If  he  finds  the  world  will  not  pay  the  price  for 
the  best,  he  may  have  to  sacrifice  quality.  Frequently  the 
middleman  makes  him  do  so,  yet  he  still  endeavours  to  provide 
the  best  he  can,  and  is  there  any  producer  who  takes  no  pride 
in  his  products,  or  does  not  try  to  better  his  competitors  in 
quality,  or  does  not  improve  his  output  to  the  best  of  his 
ability  ?  On  the  other  hand,  the  middleman  is  only  a  step- 
mother. He  buys  and  sells  anything,  and  has  no  cause  for 
pride  in  what  he  sells  ;  he  thinks  only  of  his  profit. 

It  is  therefore  essential  to  distinguish  between  the  riches 
amassed  through  the  production  and  the  exchange  of  wealth, 
and  to  realize  that  the  interests  of  the  producer  and  the 
handler  of  wealth  are  diametrically  opposed ;  indeed,  it  is 
into  these  two  classes  only  that  every  nation  is  divided,  for, 
all  being  consumers,  they  cannot  form  a  class. 

Nevertheless  it  is  not  possible  to  open  a  newspaper  without 
finding  a  reference  to  trade,  exchange,  or  buying  and  selling. 
It  was  the  same  before  the  War — the  papers  were  full  of  it  and 
its  vital  importance.  The  cry  "  Business  as  usual  "  during 
the  War  is  not  forgotten,  and  to-day  it  is  "  Trade  after  the 
War,"  and  so  forth.  True,  production  is  now  also  mentioned, 
but  it  is  not  recognized  that  trade  is  merely  its  consequence. 
Apparently  the  greatest  calamity  that  can  happen  to  a  nation 


HANDLERS  OF  WEALTH 

is  anything  that  interferes  with  its  trade.  No  wonder  that 
Napoleon  said  that  the  British  were  a  nation  of  shopkeepers ! 

How  often  do  we  read  and  hear  of  the  ( romance  of  trade  ' ! 
Was  there  ever  any  romance  in  trade,  or  had  the  '  romance  ' 
really  anything  to  do  with  trade  ?  What  is  the  meaning  of 
'  trade  '  ?  What  more  does  it  stand  -for  than  the  exchange  of 
commodities  or  goods  ?  Is  there  any  romance  in  that  ?  Is 
there  romance  in  exchanging  a  sack  of  potatoes  for  a  sack  of 
apples  ?  Is  there  anything  more  than  this  in  trade  ?  Yes, 
there  is  romance — at  least  there  was  variety,  adventure,  risk, 
etc. — connected  with  foreign  trade.  There  is  romance  in 
travelling,  in  going  to  strange  countries,  in  exploring  and 
seeing  what  is  as  yet  unknown  to  those  who  stay  at  home. 
There  may  be  romance  to-day  in  travelling,  but  to  travel  in 
order  to  exchange  commodities  surely  does  not  heighten  the 
romance.  To  travel  or  go  into  danger  for  the  sake  of  sport, 
adventure,  discovery,  science,  does  indeed  enhance  the 
romance  of  travel,  but  to  travel  for  trade  !  To  go  into  un- 
known countries  with  a  pack  of  cheap  cottons  and  exchange 
them  for  ivory  is  only  romantic  until  the  exchange  begins. 
At  that  point,  is  the  romance  to  be.  found  in  obtaining  a  good 
bargain  or  a  bad  one  ?  To  get  more  from  ignorant  people 
than  is  fair,  is  that  romance  ?  To  get  less  is  either  foolish 
or  philanthropic  ;  is  the  latter,  forsooth,  allied  to  trade  ? 

Trade  follows  the  Flag,  i.e.,  the  romance  has  preceded  the 
trade.  Again,  a  trader  dies  and  leaves  a  million.  He  started 
with  nothing.  That  is  called  a  romance.  No  question  is 
asked  how  that  million  was  amassed.  At  whose  expense  ? 
Certainly  it  must  have  been  at  someone's,  because,  as  we  saw 
in  Chapter  V,  creating  demand,  or  making  goods  available, 
cannot  create  wealth,  which  exists  as  soon  as  the  goods  are 
produced.  It  is  the  profit  on  the  exchange,  not  the  exchange 
itself,  which  built  up  that  million.  Whose  life  or  blood  pays 
for  this  profit  ?  And  has  the  trader  added  to  the  wealth  of 
the  nation  ? 

Fortunes  are  amassed  at  home  in  trade,  buying  and  selling. 
A  shopkeeper  makes  a  fortune.  Has  he  done  anything  to 
enrich  the  nation  ?  Not  by  one  halfpenny.  Has  the  banker 

65 


THE  REAL  WEALTH  OF  NATIONS 

enriched  the  nation  ?  and  who  pays  for  his  palaces  ?  Why, 
the  producers  to  be  sure  ;  there  is  no  one  else  to  pay. 

There  is  no  difference  in  principle  between  the  village 
grocer  and  the  great  department  store.  A  big  store  may 
reduce  the  average  middleman's  profit,  although  the  display 
and  his  riches  make  it  doubtful,  while  their  sometimes  lower 
prices,  unless  there  is  a  real  increase  in  the  total  efficiency 
of  wealth-handling,  are  obtained  mostly  by  reducing  the 
producer's  profit,  which,  if  it  be  not  enormous,  must  lower 
wages.  No  one  is  really  better  off  for  palatial  stores,  and 
who  pays  for  them  ?  Surely  the  producers  !  A  newspaper 
article  states  :  "  Gordon  Selfridge  has  written  a  book  about 
business  and  romance.  Almost  he  persuades  us  all  to  be- 
come Merchant  Princes."  Shade  of  Napoleon,  a  nation 
of  middlemen  indeed  ! 

Further,  apart  from  politicians  and  lawyers,  it  is  traders 
who  influence  government  policy,  and  for  their  own  benefit. 
Nothing  should  interfere  with  trade,  they  say— that  is,  the 
exchange  of  commodities — or  the  nation  will  suffer.  Does 
this  really  mean  that  the  traders  will  suffer  ?  Would  that 
matter  to  the  nation  ?  They  do  not  necessarily  enrich  it.  Why 
are  traders  necessary  at  all,  and  why  are  so  many  necessary  ? 
What  are  their  functions  ?  A  direct  exchange  of  a  sack  of 
apples  for  a  sack  of  potatoes  requires  no  trader,  and  neither 
party  is  richer  after  the  exchange  than  the  moment  before, 
presuming  that  the  two  commodities  have  equal  intrinsic 
value.  Yet  there  is  a  widespread  delusion  that  the  creation 
of  wealth  is  due  to  trade.  What  is  any  trader — that  is,  a 
man  handling  wealth — but  a  middleman  ?  Are  middlemen 
necessary  ?  Yes,  to  some  extent  they  are,  because  it  is 
not  always  practicable  to  bring  producer  and  the  user  of  his 
product  into  direct  contact,  notwithstanding  that  trade  so 
originated. 

There  is  to-day  little  direct  exchange  because  it  is  not 
convenient,  and  hence  the  middleman.  He  does  not  improve 
the  goods  he  handles — in  fact,  he  reduces  the  total  intrinsic 
value  available  by  his  expenses  and  his  profit,  like  the  trans- 
port workers  and  the  potatoes,  and  therefore  increases  their 
66 


HANDLERS  OF  WEALTH 

price.  How  then  does  a  trader,  a  small  local  shopkeeper, 
obtain  his  living,  or  a  large  one,  a  big  store,  or  merchant, 
amass  wealth  ? 

From  two  sources.  Firstly,  from  the  buyers,  usually  called 
the  consumers,  and  secondly  from  the  producers,  not  generally 
recognized  as  the  workers  (productive  labour),  who  are  the 
principal  consumers  also.  The  middleman  asks  from  the 
buyer  the  highest  price  for  his  wares  that  he  can  get,  as  much 
more  than  he  paid  as  he  can  induce  the  latter  to  pay.  If 
there  be  a  shortage  of  the  commodity,  up  goes  his  price.  The 
profiteer  is  known  at  last.  The  actual  cost  to  the  nation,  i.e., 
consumption  of  necessaries  in  producing  the  goods,  does  not 
enter  into  his  calculation.  The  middleman  (if  fortunately 
he  be  limited  to  one)  gets  his  supplies  from  the  pro- 
ducers or  workers.  He  beats  their  prices  down,  being  aided 
therein  by  rivalry  of  one  producer  against  the  other,  not  out 
of  love  for  the  consumer,  but  for  his  own  benefit.  How  great 
this  benefit  is,  the  enormous  fortunes  made  by  middlemen  in  a 
few  years  clearly  demonstrate.  Figures  would  probably  show 
that,  apart  from  the  advance  due  to  higher  wages,  most  of 
the  rise  in  prices  during  the  War  was  due  to  the  various  classes 
of  middlemen. 

The  producer's  price  is  based  on  his  cost.  The  producer's 
capital,  risk,  and  skill  (is  this  the  romance  ?)  are  incomparably 
greater,  yet  he  is  satisfied,  as  a  rule,  with  a  reasonable  average 
of  profit  on  his  cost.  The  producer  must  also  wait  a  far  longer 
time  for  a  return  on  his  capital,  because  production  or  manu- 
facturing are  not  done  in  a  day.  For  him  there  is  no  pretence 
of  "  small  profits  and  quick  returns." 

There  is  no  comparison  between  the  education,  ability,  and 
brains  necessary  to  control  production,  as  opposed  to  selling. 
It  is  the  expert  knowledge,  efficiency,  and  inventiveness  of  the 
producer  which  enable  the  middleman  to  compete  or  offer  a 
better  article,  or  better  value.  Indeed,  while  one  man  with 
an  unskilled  staff  can  sell  to  the  value  of  millions  yearly,  he 
could  not  produce  the  articles  in  which  he  trades ;  nor  was  it 
the  middleman  who  in  the  four  years  of  the  War  enabled 
Britain  to  equal,  and  in  many  ways  to  surpass,  Germany 


THE  REAL  WEALTH  OF  NATIONS 

in  the  efficiency  and  quality  of  production,  in  spite  of  two 
generations  of  neglect. 

Nevertheless,  the  middleman  is  necessary  ;  the  community 
cannot  do  without  him ;  but  he  cannot  do  without  the  pro- 
ducers, although  they  do  not  seem  to  be  aware  of  the  fact. 
The  middlemen  frequently  combine  and  endeavour  to  dictate 
to  producers.  In  addition  to  ever  new  shipping  combines  there 
are  numerous  combinations  of  banks,  insurance  companies,  etc. 
The  nation  does  not  object.  The  result  is  more  profit  for 
the  middlemen,  their  number  is  ever  on  the  increase,  and 
rarely  is  there  only  one  middleman  between  producer  and 
buyer. 

On  the  other  hand,  a  combination  of  producers,  which 
would  reduce  the  real  cost  of  production  and  increase  the 
national  wealth,  is  considered  detrimental  to  trade,  and  arouses 
murmurs  of  '  trusts,'  and  '  monopolies  '  in  the  place  where  our 
laws  are  made,  whence  it  appears  that  our  middlemen  law- 
makers think  of  their  own  interests  only. 

There  are  but  two  classes  of  commodities,  necessaries  and 
luxuries.  As  regards  the  former,  the  trader  adds  to  their  cost 
before  they  get  to  the  people  who  need  them.  As  there  is  at 
present  a  shortage  of  necessaries  which  is  likely  to  continue  for 
some  years,  there  will  not  be  romance  in  selling  them.  The 
buyers  will  clamour  for  them. 

Now  let  us  consider  luxuries.  How  are  they  made  avail- 
able ?  Through  trade  ?  Certainly  not,  but  solely  through 
production,  primarily  because  the  production  of  necessaries 
being  intensified,  and  the  demand  for  necessaries  consequently 
being  satisfied,  labour  is  set  free  for  producing  luxuries. 

When  luxuries  are  once  produced,  even  if  the  middleman 
creates  a  demand  for  them,  he  does  not  increase  their  value, 
which  we  have  shown  is  only  relative  to  that  of  necessaries, 
nor  the  amount  of  wealth  which  they  represent,  but  only  their 
cost  and  price.  It  is  true,  he  may  provide  opportunity  to 
dispose  of  them,  but  very  rarely  does  he  make  a  market  for 
them  ;  that  is,  again,  generally  due  to  the  producers.  The 
producer  generally  takes  most  of  the  risk,  not  the  middleman. 
The  middleman  claims  that  he  stimulates  production,  but, 
68 


HANDLERS  OF  WEALTH 

unless  this  means  that  he  encourages  waste,  he  merely  provides 
the  opportunity  for  exchange  when  the  labour  and  the  goods 
are  available.  That  is  the  sum  total  of  his  service.  He  does 
not  really  obtain  a  better  price  for  the  producer,  as  this  de- 
pends primarily  on  value,  although  also  on  competition,  or 
demand ;  in  fact  he  reduces  the  producer's  profit  by  his  cost. 
Frequently  he  sells  foreign  goods,  often,  as  we  shall  see,  to  the 
detriment  of  the  home  producer. 

When  a  middleman  takes  advantage  of  '  demand  *  to  put 
up  prices,  his  action  usually  benefits  few  individuals  only, 
whereas  a  producer  is  intimately  connected  with  his  workers  as 
one  of  them.  The  middleman  requires  generally  less  capital 
and  contributes  far  less  to  the  cost  of  government,  both  national 
and  local,  in  taxes,  rates,  cost  of  gas,  water,  electricity,  street 
maintenance,  etc.  He  employs  mostly  unskilled  and  low- 
waged  workers,  for  only  a  small  proportion  of  clerks  are  really 
skilled  and  a  few  accountants  can  handle  a  very  large  turnover, 
and  his  profit  is  made  entirely  at  the  expense  of  the  producers 
and  consumers. 

It  should  also  be  noted  that  the  farther  from  the  producer 
one  buys,  the  less  the  price  depends  upon  original  cost,  and 
the  more  on  supply  in  relation  to  demand,  and  profiteering. 
Production  almost  always  precedes  demand  by  a  long  period, 
and  variation  in  demand  is  not  due  to  the  producer  as  a  rule, 
but  is  a  '  temporary  state.'  The  producer  rarely  hoards — in 
fact,  he  generally  cannot  afford  to  do  so. 

As  far  as  our  enormous  home  trade  is  concerned,  it  is  obvious 
that  the  middleman,  although  necessary,  cannot  increase  the 
nation's  wealth  ;  and  are  not  the  foregoing  considerations  also 
applicable  to  foreign  trade  ?  Is  foreign  trade  any  measure  of  a 
nation's  prosperity  ?  Many  people  think  it  is,  but  obviously 
a  nation  can  become  wealthy  with  no  foreign  trade  to  speak  of, 
providing  it  has  its  necessary  raw  material  and  can  produce 
its  essential  requirements.  If  it  does  not  possess  its  raw 
material,  it  need  import  only  raw  material  or  what  it  cannot 
produce.  We  shall  prove  later  that  whether  foreign  trade 
benefits  a  nation  depends  upon  what  it  exports  in  exchange  for 
its  imports,  and  a  balance  of  exports  over  imports  is  no  more 


THE  REAL  WEALTH  OF  NATIONS 

an  indication  of  national  wealth  increment  than  a  balance 
on  an  exchange  of  goods  between  individuals  is  proof  that 
the  debtor  has  made  less  profit  than  the  creditor. 

We  have,  indeed,  a  Board  of  Trade,  but  there  is  no  sign  of 
a  Board  of  Production,  albeit  only  increased  production 
benefits  the  whole  nation,  whereas  the  latter  is  impoverished 
by  the  army  of  unessential  traders,  whose  interests  are  dia- 
metrically opposed  to  those  of  the  producers,  who  nolens  volens 
provide  for  the  whole  community. 

In  addition  to  the  essential  handlers  of  wealth,  who,  so  far 
as  their  work,  if  not  their  profit,  is  concerned,  are,  or  should 
be,  the  servants  of  the  producers,  anyone  who  is  engaged  in 
saving  human  life  or  labour  ranks  economically  as  a  producer. 
Thus,  doctors,  architects,  accountants,  engineers,  the  clergy, 
may  be  producers,  according  as  their  work  is  good  or  bad.  A 
doctor  who  saves  a  productive  human  life  increases  production. 
Architects  and  engineers,  by  using  labour  and  material  to  the 
best  advantage,  save  labour,  and  thus  increase  leisure  or 
permit  of  a  greater  number  of  producers.  Religion,  when  it 
helps  men,  influences  their  actions  for  the  well-being  of  man- 
kind ;  creative  artists  are  also  producers,  if  only  of  joy-wealth, 
and  the  stage  has  its  place  by  affording  relaxation  which 
stimulates  man  to  fresh  effort.  Further,  as  laws  are  essential, 
those  who  make  good  ones,  those  who  interpret  them,  by 
avoiding  time-wasting  disputes  also  rank  as  producers ;  but  a 
large  proportion  of  the  activities  of  lawyers  is  an  appalling 
expenditure  of  brains  which  could  be  employed  productively 
to  better  purpose,  and  the  fortunes  of  lawyers  frequently 
represent  merely  a  transfer  of  wealth.  The  same  applies  to 
representatives  of  the  people  in  parliaments  and  councils.  By 
their  fruits  ye  shall  know  them  ! 

Having  enumerated  the  various  classes  of  wealth-producers, 
it  is  now  clear  who  is  the  greatest  of  these.  The  output  of  an 
individual  is  generally  limited  by  his  own  capacity,  and  such 
emulation  as  he  can  inspire  others  to  attempt,  whereas  the 
possibilities  of  a  teacher  increasing  the  well-being  of  humanity 
are  almost  incalculable.  His  raw  material  is  youth,  from 
whose  character,  which  he  can  develop,  the  material  and 
70 


HANDLERS  OF  WEALTH 

moral  wealth  of  the  world  is  derived.  But  if  this  be  true  it 
is  first  of  all  essential  that  the  teacher  himself  recognize  his 
importance,  responsibilities,  and  opportunities.  Not  only  must 
the  right  to  teach  be  limited  to  those  who  have  a  talent  and 
love  for  the  profession,  but  cleverness,  or  superiority,  shall 
not  of  itself  be  a  passport  thereto.  The  object  of  a  teacher 
must  not  be  to  impose  his  own  individuality  on  his  pupils, 
but  to  develop  theirs,  and  this  obviously  requires  a  special 
temperament,  as  well  as  knowledge. 

And  when  the  super-producer  is  properly  paid,  so  that  the 
master  mind  is  attracted  to  the  profession,  what  new  am- 
bitions is  he  to  instil  into  his  pupils  ?  The  children  of  the 
poor  are  naturally  taught  to  earn  their  living,  but  no  dis- 
tinction is  made  between  the  actual  production  of  wealth 
and  the  transference  of  it  from  others  ;  in  fact,  to  get  rich 
with  the  least  possible  exertion  is  the  ambition  inculcated  in 
the  schools.  The  necessity  for  work  is  obvious,  but  the  dignity 
of  creation  is  ignored,  which  is  hardly  surprising  when  teachers 
themselves  believe  that  wealth  is  due  to  trade,  and  fail  to 
recognize  the  fact  that  from  production  alone  arises  the 
well-being  of  humanity. 

Further,  just  as  labour  can  be  used  to  produce  or  to  handle 
wealth,  so  can  capital,  and  the  same  arguments  apply  with 
regard  to  the  individual  or  national  benefit  derived  there- 
from, although  here  also  no  distinction  appears  to  have  been 
made.  Capital  being  essential  to  the  production  of  man- 
wealth,  its  withdrawal  for  the  purpose  of  handling  wealth 
reduces  the  amount  available  for  production.  Thus  the 
amount  of  both  labour  and  capital  devoted  to  other  purposes 
than  production,  unless  for  necessary  services  and  improve- 
ments in  which  all  benefit,  is  a  matter  of  primary  concern. 
We  shall  see  later  that  the  more  skilled  an  industry  the  more 
capital  it  requires  and  the  more  wealth  it  produces  per  worker, 
so  that  the  most  productive  industries  should  have  the  first 
call  on  capital. 

In  addition,  to  produce  a  large  quantity  of  goods  requires, 
in  general,  far  more  capital,  with,  under  our  present  anti- 
economic  conditions,  far  more  risk,  than  to  handle  it,  and 

71 


THE  REAL  WEALTH  OF  NATIONS 

requires  also,  as  we  have  seen,  far  more  brains  and  skill,  so 
that,  as  shown  in  Chapter  XI,  the  reward  of  both  capital  and 
labour  should  depend  upon  the  benefit  to  the  community 
derived  from  their  use  and  service. 

That  these  truths  are  overlooked  is  apparently  due  to  the 
fact  that  in  the  cities,  where  the  middlemen  do  congregate, 
are  the  seats  of  government,  and  the  producer  is  com- 
paratively out  of  sight  and  forgotten.  Yet  even  the  towns 
were  entirely  built  by  the  producer. 


CHAPTER   VII 

THE  INTRODUCTION  OF  MONEY 

IN  the  preceding  chapters  we  considered  the  principles 
governing  the  exchange  of  wealth,  or  trade,  assuming 
an  exchange  of  the  goods  themselves,  and,  although  in 
practice  this  would  be  very  inconvenient,  the  necessity  for 
money,  or  tokens,  does  not  arise  solely  because  of  it.  Another 
compelling  reason  is  the  almost  infinite  variety  in  the  com- 
parative values  of  details  of  our  daily  requirements.  Thus 
a  man  producing  one  article  only  could  not  divide  his  product, 
e.g.,  one  who  has  made  a  table  would  be  unable  to  purchase 
a  single  reel  of  cotton,  and  so  money  or  some  other  token  is 
practically  essential  for  exchange. 

Most  people  know,  or  pretend  to  know,  that  money  is  only 
a  token.  They  have  read  so,  or  been  told  so,  and  therefore 
assume  that  it  must  be  true,  but  even  those  who  ought  to  be 
most  certain  of  it  and  are  most  affected  by  the  fact,  expose, 
as  we  shall  see,  their  forgetfulness  by  their  actions.  We 
repeat  like  parrots,  "  Money  is  not  wealth  but  a  token  there- 
for," yet  seeing  a  man  with  lots  of  money  and  knowing  that 
he  is  wealthy,  we  do  not  really  believe  it,  or  if  we  do,  think 
the  point  is  a  theoretical  one  which  does  not  concern  us.  We 
also  know  that  there  are  other  sorts  of  money  than  ours  ; 
that  some  savages  use  sea-shells,  and  that  many  boys  find 
that  marbles  answer  the  purpose.  William  Penn,  who  con- 
quered the  American  Indians  without  the  use  of  weapons, 
whence  a  boy  deduced  that  "  the  pen  is  mightier  than  the 
sword,"  is  said  to  have  used  beads,  the  education  of  the 
Indians  being  insufficiently  advanced  to  appreciate  pens  ! 

Although  shells,  marbles,  arid  beads  have  thus  been  used,  it 
is  evident  that  tokens  should  not  be  readily  counterfeitable, 

73 


THE  REAL  WEALTH  OF  NATIONS 

nor  should  the  individual  be  permitted  to  choose  or  make  his 
own,  hence  it  is  customary  to  use  material  of  some  scarcity, 
not  because  it  has  a  high  value,  but  because  its  supply  is 
generally  more  easily  controllable  by  those  in  authority. 
It  is  also  desirable  that  tokens  should  be  hygienic. 

Gold  and  silver  are  to-day,  therefore,  the  chief  tokens, 
but  their  value  as  such  is  purely  artificial  and  quite  distinct 
from  either  their  utility  or  luxury  value.  Thus,  if  we  discon- 
tinued the  use  of  gold  for  money  and  substituted  platinum, 
the  price  of  gold  might  go  up  or  down.  If  the  world  then 
discarded  gold  ornaments,  so  much  gold  exists  beyond  the 
quantity  needed  in  industries  that  it  might  become  almost  as 
cheap  as  copper.  On  the  other  hand,  it  is  reported  that  the 
present  cost  of  mining  gold  in  South  Africa  nearly  equals  its 
exchange  value,  and  that  being  the  case,  were  the  world 
dependent  on  this  source  of  supply  it  would  be  within  sight 
of  having  to  pay  more  for  it  than  its  intrinsic  value  in  money 
or  of  finding  a  substitute. 

Paper  is  also  largely  used  as  a  token,  and  there  is  no 
economic  reason  why  a  community  should  use  any  other.  It 
is  true  that  it  would  be  inconvenient  to  have  many  sorts  of 
paper  money,  and  counterfeiters  might  get  busy,  yet  there  is 
no  reason  why,  in  place  of  gold,  the  world  should  not  agree 
on  an  international  paper  currency,  controlled,  perhaps,  by 
the  League  of  Nations.  The  sole  difference  between  gold  and 
notes,  as  a  token,  lies  in  the  fact  that  whereas  notes  are  guar- 
anteed by  nations,  gold  is  accepted  by  the  world,  yet  everyone 
knows  that  their  relative  value  is  for  ever  changing,  and  notes 
are  sometimes  worth  more  than  gold. 

Money  being  merely  a  token  for  wealth,  were  it  all  thrown 
into  the  sea,  the  wealth  which  it  represents  must  remain  un- 
altered (excepting  as  regards  the  intrinsic  value  of  the  lost 
metal).  Those  who  had  held  the  money  would  be  ruined,  while 
those  who  held  the  goods  would  be  richer  by  an  equal  amount, 
for  with  the  disappearance  of  money  goes  that  obligation  to 
redeem  it  which  gives  it  value  ,  e.g.,  if  an  individual  burn  a  £5 
note,  the  Government,  i.e.,  the  rest  of  the  community,  gains  £5. 
The  same  applies  if  an  individual  destroy  postage  stamps. 

74 


THE  INTRODUCTION  OF  MONEY 

Money,  then,  being  a  token,  it  will  be  useless  to  a  man  on  a 
lonely  island.  On  the  other  hand,  if  the  amount  of  money 
which  each  person  possessed  were  suddenly  doubled,  all  would 
not  be  twice  as  rich,  nor  indeed  any  richer.  Money  is  a  token 
merely,  but  the  constant  and  universal  clamour  for  higher 
wages  is  a  proof  that  the  fact  is  not  realized. 

It  cannot,  further,  be  denied  that  a  man,  even  in  this 
country,-  can  be  wealthy  with  large  possessions  yet  little 
ready  money,  so  that  it  is  of  real  importance  to  know  what 
decides  the  value  of  money,  not  under  freak  conditions,  but 
normally,  and  then  to  test  the  universal  application  of  our 
knowledge. 

The  statement  that  "  the  value  of  money  is  decided  by  the 
amount  in  circulation  relative  to  the  commodities  available," 
is  no  more  helpful  than  is  its  description  as  '  a  token,'  for  how 
can  we  measure,  or  what  decides,  the  amount  in  circulation, 
and  is  it  immaterial  of  what  the  commodities  consist  ?  It  is 
obvious  that  the  mere  issue  of  money  cannot  affect  its  value, 
and  would  millions  of  motor-cars,  or  unlimited  tobacco,  make 
potatoes  cheaper  ?  Let  us  again  begin  at  the  beginning,  and 
consider  how  money  first  acquires  its  value,  and  the  causes  of 
any  subsequent  alteration  thereof. 

THE  VALUE  OF  MONEY. — We  need  not  go  back  to  the 
savages,  because,  although  they  used  tokens  to  some  extent, 
no  recognized  value  was  attached  to  them,  and  we  will  there- 
fore contemplate  a  simple  civilized  community  employing  a 
subdivision  of  labour  which  necessitates  exchange  and  the 
use  of  money. 

If  an  island  like  Britain  (we  are  considering  at  present  only 
national  economics)  have  a  population  of  forty  millions  (and 
at  a  given  second  on  any  day  in  any  year  it  has  a  definite 
population)  it  must  hold  on  a  given  morning  (in  Chapter  III 
we  showed  that  we  can  correctly  ignore  seasons  and  harvests) 
sufficient  necessaries  for  the  day  for  that  number  of  people. 

Let  us  assume  first  that  each  man  is  a  producer  and 
produces  only  necessaries  of  life,  but  not  of  the  variety  he 
requires,  nor  any  excess  beyond  N,  and  in  H  hours.  If  he 
then  sell  these  to  obtain  the  variety  of  necessaries,  he  must 

75 


THE  REAL  WEALTH  OF  NATIONS 

receive  in  exchange  enough  tokens  to  enable  him  to  purchase 
N,  or  his  complete  daily  necessaries  of  life.  If  this  number 
of  tokens  be  T,  their  value  is  defined ;  they  must  purchase 
N,  and  every  man,  even  the  most  unskilled,  must  produce  a 
value  and  must  receive  in  exchange  for  his  day's  product,  or 
H  hours'  labour,  on  the  average,  T  tokens,  or  N  goods.  Thus, 
if  man  lived  only  on  potatoes,  and  required  ten  pounds 
per  diem,  their  price  is  T  tokens,  and  the  purchasing  power 
of  money  is  definitely  decided.  The  fact  that  man  requires  a 
variety  of  necessaries  does  not  invalidate  our  argument,  for 
we  have  already  dealt  with  their  fair  rate  of  exchange,  or 
relative  value. 

Thus,  where  all  are  producers,  and  sufficient  necessaries 
of  life  for  the  whole  population  only  are  produced,  the  value 
of  money  is  decided  by  the  number  of  tokens  paid  to  each 
producer,  which  enables  him  to  obtain  his  daily  necessaries  of 
life,  N. 

We  have  already  seen  that,  owing  to  further  subdivision  of 
labour,  all  men  are  not  producers.  All  must  receive  their 
daily  necessaries  of  life,  however,  whence  if  three-quarters 
of  the  total  number  of  workers  now  produce  just  sufficient 
necessaries  for  all,  and  one-quarter  handle  them,  each  producer 
can  only  retain  for  himself  three-quarters  of  his  produce, 
which  must,  nevertheless,  equal  N. 

He  must  therefore  produce  i%N,  in  H  hours,  unless  he  is 
to  be  worse  off  through  the  subdivision  of  labour,  yet  if  he 
desire  to  sell  these,  in  order,  once  again,  to  obtain  the  variety 
of  necessaries,  he  will  only  receive  T  tokens  for  T^N,  because 
he  is  only  entitled  to  retain  for  himself,  or  purchase  for  him- 
self, a  quantity  of  necessaries,  N.  Obviously,  if  the  producer 
obtained  i%T  tokens,  he  could  buy  with  them  i%N,  and 
there  would  be  no  necessaries  left  for  the  non-producers,  who 
would  perish. 

Thus  the  producer  now  actually  receives  J  less  tokens  than 
correspond  to  his  production,  in  order  that  the  non-producer 
receive  this  proportion.  Expressed  otherwise,  each  non- 
producer,  or  wealth-handler,  abstracts  J  from  each  of  three 
producers'  output  for  himself,  making  a  total  of  N. 
76 


THE  INTRODUCTION  OF  MONEY 

This  confirms  our  statement  in  previous  chapters  that  the 
producer,  nolens  volens,  must  support  the  whole  community, 
and  that  in  a  civilized  state,  i.e.,  where  men  are  not  allowed  to 
starve,  he  must  surrender  a  part  of  his  produce.  Consequently, 
although  the  producer  is  now,  through  a  subdivision  of  labour, 
more  efficient  than  he  was,  yet  this  .higher  efficiency  is  wasted 
owing  to  the  cost  of  handling  the  goods,  and  the  value  of 
money,  therefore,  remains  unaltered,  because  T  tokens  will 
purchase  only  N. 

Thus,  where  some  men  are  not  producers  the  value  of 
money  is  decided  by  the  number  of  tokens  paid  to  the  producer 
of  necessaries  for  that  share  of  his  production  which  his 
relationship  to  the  community  entitles  him  to  retain  to  himself, 
or  which  he  must  exchange  in  order  to  obtain  the  complete 
necessaries  he  requires.  The  value  of  money  rises,  therefore, 
as  the  ratio  of  non-producers  to  producers  falls. 

Returning  again  to  our  assumption  that  all  men  are  pro- 
ducers and  of  necessaries  only,  we  will  now  presume  a  higher 
efficiency  of  production,  and  N  produced  in,  on  the  average, 
YQpf  hours,  when,  if  T  be  still  the  price  of  Nt  it  is  paid  for  -f^H 
hours'  labour.  That  is,  every  man  receives  more  tokens  per 
hour,  or  if  he  works  H  hours,  he  will  produce  -\p/V,  and  have 
a  surplus  of  ^N  necessaries  or  of  -§T  tokens  after  purchasing 
his  N.  Alternatively,  if  the  rate  per  hour  remains  the  same 
he  would  only  receive  -f^T  tokens  for  -f^H  hours'  work,  yet 
this  would  purchase  N,  which  now  costs  -f^T  only,  and  the 
value  of  money  for  the  purchase  of  necessaries  has  increased 
as  10  to  9. 

This  is  also  clear  even  in  the  case  of  men  deciding  to  work 
only  -ffiH  hours,  for  as  the  cost  of  production  is  the  necessaries 
consumed  during  that  process,  as  shown  in  Chapter  III,  it 
depends  on  the  number  of  hours  worked.  Nt  therefore,  now 
costs  Yi)  less  than  before,  and  the  value  of  money  has  risen 
proportionately.  Indeed,  although  the  men  may  still  receive 
T  tokens  for  -£$H  hours'  work  and  have  no  surplus  of  neces- 
saries, the  T  tokens  will  purchase  not  only  N,  but  one  hour's 
leisure  in  addition — leisure,  as  we  have  seen,  being  the  first  form 
of  wealth  provided  by  a  surplus  of  necessaries.  The  value  of 

77 


THE  REAL  WEALTH  OF  NATIONS 

money,  therefore,  also  rises  with  an  increase  in  the  efficiency 
of  production  of  necessaries. 

We  have  assumed  here  that  all  men  are  producing  at  an 
identical  rate,  but  let  us  now  suppose  that  half  the  producers 
remain  unskilled,  and  the  other  half  become  skilled,  producing 
thereby  -^  of  N  in  H  hours,  when  the  average  production 
would  be  the  same  as  assumed  above.  If,  then,  each  class  be 
entitled  to  that  number  of  tokens  which  corresponds  with  its 
production,  the  value  of  money  having  risen  as  10  to  9, 
the  unskilled  will  only  receive  -fa  of  T  tokens,  which  will 
purchase  their  N,  while  the  skilled  will  receive  y^  of  T  tokens. 

On  the  other  hand,  did  the  unskilled  still  receive  T  tokens, 
yet  were  only  allowed  to  retain  what  they  produced,  viz., 
N,  the  skilled  would  have  to  receive  -^  of  T  tokens  in  order 
to  purchase  -^  of  N,  and  we  should  artificially  have  kept 
the  value  of  money  at  its  old  level,  despite  an  increased  pro- 
duction. In  this  case  it  is  obvious  that  a  greater  number  of 
tokens  would  be  required  to  cope  with  an  increased  supply  of 
necessaries,  assuming  the  rapidity  of  circulation  of  money  to 
be  the  same  as  before. 

So  far  we  have  considered  the  distribution  of  wealth  in 
accordance  with  the  value  produced,  but  if  we  now  alter  this 
distribution,  say,  make  it  equal  in  spite  of  the  unequal  pro- 
duction, the  unskilled  will  receive  T  tokens  as  well  as  the 
skilled,  and  these  will  purchase  not  only  Nt  but  ^N  in  addition, 
whence  the  effect  of  an  alteration  in  distribution  is  merely  to 
alter  the  number  of  tokens  paid  to  various  classes. 

The  arguments  in  the  preceding  paragraphs  hold  good 
as  concerns  the  further  subdivision  of  labour  assumed  on 
page  76,  whereby  a  quarter  of  the  men  are  not  producers, 
if,  through  a  higher  efficiency  of  production,  the  amount  of 
necessaries  obtained  from  each  producer  in  f H  hours  be  -^-N. 

Thus  it  appears  that,  considering  necessaries  of  life  only, 
the  value  of  money,  or  its  purchasing  power,  rises  propor- 
tionately with  a  higher  efficiency  in  their  production,  and 
with  an  increase  in  the  number  of  producers  as  compared  with 
non-producers.  This  is  equivalent  to  saying  that  the  value 
of  money  for  the  purchase  of  necessaries  rises  as  the  average 

78 


THE  INTRODUCTION  OF  MONEY 

number  of  hours  falls  which  their  producers  have  to  work  in 
order  to  provide  enough  for  the  whole  population. 

Let  us  next  assume,  again  ignoring  non-producers,  a 
further  increase  of  efficiency  in  the  production  of  necessaries, 
which  now  require,  say,  only  %H  hours,  and  let,  therefore, 
half  the  workers  be  engaged  on  them,  and  the  other  half  on 
the  production  of  luxuries.  The  former,  producing  2N 
per  day,  can  only  retain  for  themselves  half  the  result  of 
their  labour,  or  N,  for  which  they  receive  T  tokens  for  H 
hours'  work,  but  in  addition  they  are  entitled,  assuming  equal 
skill  and  an  equal  wealth  distribution,  to  receive  from  the 
luxury  producers,  whom  they  support,  in  exchange  for  their 
surplus  necessaries,  half  the  amount  of  luxuries  produced. 
Thus,  T  now  buys  N  plus  some  luxuries,  but  their  value 
being,  as  we  have  seen,  purely  a  matter  of  opinion,  and  relative 
to  that  of  necessaries,  we  can  only  say  that  the  purchasing 
power  of  T  is  N  plus  a  luxury  which  may  be  valueless. 

If,  indeed,  we  assume  that  the  '  luxury  value  '  produced 
per  hour  is  equal  to  the  '  necessaries  value/  the  value  of  the 
commodities  available  is  doubled,  and  corresponds  to  a  similar 
increase  in  that  of  money  ;  yet  not  merely  is  this  assumption, 
as  we  know,  untenable,  but  the  workers  who  should  have 
produced  luxuries  might  have  produced  nothing,  enjoying 
the  luxury  of  leisure  at  the  expense  of  the  producers  of 
necessaries.  On  the  other  hand,  had  the  work  been  equally 
shared,  all  workers  would  now  enjoy  a  working  day  of  half 
the  length,  obtaining  their  necessaries  as  well  as  %H  hours' 
leisure.  Consequently  the  value  of  money  for  the  purchase 
of  necessaries  would  have  doubled,  despite  no  increase  in  the 
quantity  of  either  necessaries  or  luxuries  available,  because 
the  former  are  now  obtained  for  %H  hours'  work,  and  in  the 
remaining  half  a  complete  supply  of  necessaries  could  have 
been  produced  as  an  alternative  to  the  enjoyment  of  leisure. 
An  increase  in  the  amount  of  commodities  is  obviously, 
therefore,  primarily  attainable  through  a  greater  efficiency 
in  the  production  of  necessaries,  the  value  of  money  for  the 
purchase  of  which  is  unaffected  by  the  production  of  luxury 
value. 

79 


THE  REAL  WEALTH  OF  NATIONS 

The  converse,  however,  does  not  hold  good,  for  the  cost  of 
producing  luxuries  with  a  given  efficiency  is  the  consump- 
tion of  necessaries  of  those  workers  employed  thereon,  so  that, 
ignoring  the  question  of  profit,  or  considering  its  percentage 
constant,  the  value  of  money  for  the  purchase  of  necessaries 
must  decide  also  the  price  of  luxuries,  or  the  purchasing 
power  of  money  generally.  This  conclusion  is  but  natural, 
for  man  must  produce  his  necessaries  first,  hence  the  value 
of  money  is  decided  before  luxuries  exist. 

We  have  assumed  in  the  above  that  the  wealth  produced 
is  equally  distributed,  but  all  men  are  not  equal,  nor  equally 
deserving,  and  never  will  be,  and  if  the  least  fortunate  were  to 
receive  only  their  necessaries  of  life,  and  no  share  of  luxuries, 
it  is  evident  that  they  would  be  interested  only  in  the  value 
of  money  for  the  purchase  of  the  former,  or  the  number  of 
hours'  work  requisite  for  obtaining  them.  Nevertheless, 
assuming  a  constant  distribution  of  wealth  and  proportion  of 
producers  to  non-producers,  it  is  obvious  that  the  value  of 
money  will  rise  as  the  total  number  of  hours  required  in 
the  production  of  necessaries  of  the  whole  population  decreases, 
for  this  decides  also  the  amount  of  luxuries,  or  leisure,  divisible. 

Further,  apart  from  the  distinction  between  the  production 
of  necessaries  and  luxuries,  the  value  of  money  is  not  decided 
merely  by  the  commodities  available,  because  an  increased 
output  might  be  due  to  longer  hours  of  work  necessitated  by  a 
lower  efficiency,  when  money  would  consequently  buy  less 
leisure  for  the  workers.  The  advantage  of  an  increased  output 
from  the  producers  might  also  be  lost  by  an  increase  in  the 
number  of  non-producers,  or  by  waste,  both  of  which,  as  we 
have  already  seen,  must  decrease  the  value  of  money  by 
reducing  that  share  of  the  result  of  their  labour,  i.e.,  com- 
modities and  leisure,  which  the  producers  of  necessaries,  who 
must  live,  are  permitted  to  retain  to  themselves. 

On  the  other  hand,  an  increase  in  the  amount  of  neces- 
saries available  with  the  same  average  hours  of  labour  per 
man  to  produce  them,  does  show  that  the  purchasing  power 
of  money  has  risen.  The  cause  of  this,  however,  is  either 
a  higher  national  efficiency,  or  a  smaller  number  of  non- 
80 


THE  INTRODUCTION  OF  MONEY 

producers,  of  which  the  increased  supply  is  but  the  effect. 
The  practical  importance  of  this  truth  is  evident  when  we 
consider  how  much  easier  it  is  to  watch  the  relative  efficiency 
of  production  of  each  group  of  workers,  than  to  arrive  at 
their  total  production,  even  if  we  do  divide  by  the  number  of 
producers. 

We  will  repeat  that  the  value  of  money  for  the  purchase 
of  necessaries  also  decides  the  cost  per  hour  of  producing 
luxuries,  for  this  is  merely  the  necessaries  consumed  by  the 
producers  of  luxuries,  whence  the  cost  of  the  latter  must 
depend  upon  the  price  of  the  former,  and  the  value  of  money 
for  the  purchase  of  necessaries  decides  its  value  for  the  pur- 
chase of  luxuries.  On  the  other  hand,  although  it  is  evident 
that,  just  as  in  the  case  of  necessaries,  an  increased  produc- 
tion of  luxuries  per  hour,  due  to  a  higher  efficiency,  will 
increase  the  value  of  money  for  the  purchase  of  luxuries,  the 
cause  of  which  is  again  the  efficiency,  the  availability  of 
luxuries  being  only  the  effect,  it  has  no  influence  on  the  value 
of  money  for  the  purchase  of  necessaries. 

Further,  as  necessaries  must  be  available  before  luxuries 
can  be  produced,  the  fewer  workers  required  to  produce  the 
former,  the  greater  the  supply  of  the  latter  can  be,  and  the 
amount  of  necessaries  required  for  a  given  population  being 
constant,  whereas  our  desire  for  luxuries  is  insatiable,  only 
an  increase  in  the  total  efficiency  of  production  can  yield 
both  leisure  and  pleasure. 

Man  being  unable  to  live  on  luxuries,  and  their  value  being 
relative  to  that  of  necessaries  (although  the  price  of  luxuries, 
or  the  value  of  money  as  regards  their  purchase — of  course 
we  mean  luxury  value — will  fall  with  increased  efficiency),  it  is 
clear  once  more  that,  assuming  a  constant  proportion  of  non- 
producers,  the  value  of  money  is  decided  primarily  by  the 
total  number  of  hours  that  the  producers  of  necessaries  have 
to  work.  This  latter  indicates  the  well-being,  or  otherwise,  of 
a  nation,  for  the  lower  the  average  number  of  hours'  work 
required  of  all  to  produce  daily  the  necessaries  of  life,  the 
more  luxuries  can  be  produced,  the  more  leisure  can  be  en- 
joyed, and  the  greater  the  number  of  superior  men  who  are 

81 


THE  REAL  WEALTH  OF  NATIONS 

set  free  to  develop  themselves  and  impose  their  superiority 
upon  their  fellows. 

The  delusion  that  the  amount  of  commodities  available 
decides  the  value  of  money  is  due  not  only  to  failure  to  dis- 
tinguish the  essential  difference  between  intrinsic  and  luxury 
value,  but  also  to  that  irrational  doctrine  which  sees  no  well- 
being  save  in  the  possession  of  material  wealth. 

We  have  shown  that  the  value  of  money  is  not  decided  by 
the  amount  of  commodities  available,  nor  does  the  quantity  of 
money  in  circulation  decide  it,  for  not  merely  is  it  impossible 
to  say  how  much  is  in  circulation,  but,  were  this  the  factor, 
the  rapidity  of  its  circulation  (e.g.,  wages  paid  twice  instead 
of  once  a  week)  would  affect  the  quantity,  and  therefore  the 
value  of  money,  without  any  alteration  in  the  availability  of 
commodities,  efficiency  of  production,  or  number  of  non- 
producers,  which  is  absurd.  Indeed,  other  things  remaining 
unaltered,  it  is  the  value  of  money  which  decides  the  amount 
actually  in  circulation. 

Similarly,  an  increase  in  the  amount  of  currency  issued, 
whether  it  be  gold  or  paper,  has  no  influence  either  on  the 
amount  in  circulation  or  on  the  value  of  money,  for  although 
the  necessity  for  such  an  increase  is  an  indication  that  the 
value  of  money  has  fallen,  assuming  a  constant  production, 
it  is  only  the  effect  thereof,  and  not  the  cause. 

Further,  according  to  the  theory  that  the  quantity  of 
money  in  circulation  affects  its  value,  if  goods  came  into  the 
country  and  money  went  out,  its  value  would  rise  !  It  is 
clear,  therefore,  that  so  long  as  the  number  of  tokens  paid 
for  N  remain  unaltered,  an  unlimited  supply  of  money 
would  make  no  difference,  all  prices  being  decided  by  their 
relation  to  that  of  N. 

Consequently,  the  value  of  money,  or  its  purchasing  power 
in  any  country  in  any  year  (or  on  any  day,  if  we  ignore  seasons), 
is  decided  by  the  number  of  tokens  paid  on  the  average  to  the 
producers  of  necessaries  for  that  share  of  their  produce  which, 
owing  to  their  relationship  to  the  community,  they  must 
exchange  in  order  to  obtain  their  own  full  necessaries  of  life. 
Obviously,  if  the  producer  of  necessaries,  who  first  gives 
82 


THE  INTRODUCTION  OF  MONEY 

money  its  value,  raises  his  price,  he  depreciates  its  value 
artificially,  but  as  he  must  now  surrender  more  tokens  to 
obtain  his  necessaries,  he  does  so  equally  against  himself,  for 
all  prices  should  now  rise  proportionately. 

The  value  of  money  for  the  purchase  of  luxuries  is  now  also 
decided,  for,  as  shown  in  Chapters  IV  and  V,  the  value  of  the 
latter  is  purely  relative  to  that  of  necessaries  ;  indeed,  once 
the  nation's  necessaries  are  produced,  no  one  can  say  whether 
it  were  better  off  enjoying  material  luxuries  or  leisure. 

In  a  civilized  State  where  all  men  cannot  be  producers,  the 
value  of  money  rises,  therefore,  as  the  efficiency  of  production 
of  necessaries  increases,  and  the  number  of  non-producers  is 
reduced. 

We  promised  above  to  test  the  conclusions  at  which  we 
should  arrive.  Thus,  that  under  normal  conditions  the  value 
of  money  does  not  vary  much  from  year  to  year,  nor 
improve  very  rapidly,  in  spite  of  the  constant  introduction 
of  ever  new  labour-saving  devices,  is  due  to  the  fact  that 
no  serious  attention  has  been  devoted  to  the  contributory 
factors. 

For  instance,  until  the  War,  the  importance  of  a  nation's 
producing  its  own  necessaries,  and  with  the  highest  efficiency, 
was  completely  overlooked.  Indeed,  Britain  imported  a  very 
large  percentage  of  her  necessaries,  and  we  shall  see  in  Part  III 
why  the  exports  wherewith  she  paid  for  her  necessaries 
corresponded  to  a  most  inefficient  and  unprogressive  produc- 
tion. Hence  any  increase  in  the  value  of  money  could  not 
be  anticipated. 

Further,  every  thoughtful  observer  has  remarked  upon  the 
appalling  waste  and  thriftlessness  prevalent  in  Britain,  with- 
out realizing  that  to  waste  goods  when  they  are  produced  is 
actually  equivalent  to  not  producing  them,  or  to  stultifying 
the  advantage  of  labour-saving  devices. 

There  is  no  doubt  also  that  a  large  part  of  the  wealth  and 
power  of  France,  in  spite  of  smaller  natural  resources,  as  well 
as  her  happiness,  arises  from  the  real  thrift  of  her  people  ; 
indeed,  thrift  means  well-being,  whereas  waste  spells  poverty. 

Let  us  now  subject  our  conclusions  to  the  test  of  war. 


THE  REAL  WEALTH  OF  NATIONS 

It  has  been  remarked  that  every  considerable  war  in  the 
past  caused  an  increase  in  prices,  and  this,  as  we  have  shown, 
is  but  natural,  for  owing  to  the  number  of  men  withdrawn 
from  production,  and  put  to  destruction,  and  the  increased 
number  of  non-producers,  that  share  of  his  day's  work  which 
each  producer  of  necessaries  is  entitled  to  retain  for  himself 
has  been  largely  decreased,  with  the  result  that,  as  we  have 
seen,  the  same  number  of  tokens  purchases  correspondingly 
less  necessaries.  Nevertheless,  the  real  cause  of  inflated 
prices  as  a  consequence  of  a  war  has  been  obscured,  for  the 
following  reasons  : 

Although  a  rise  in  prices  seems  inseparable  from  war,  there 
is  nearly  always  some  surplus  of  necessaries,  or  stock,  and 
consequently  if  the  war  last  only  such  a  short  time  that  this 
is  only  just  exhausted,  there  need  be  no  advance  in  prices. 
Nevertheless,  history  shows  us  higher  prices  even  in  short 
wars,  and  we  said  '  need '  advisedly,  for  there  is  another 
non-economic  cause  for  price  increase  in  war-time,  viz.,  man's 
greed — otherwise,  our  old  friend  the  law  of  supply  and 
demand. 

What  more  '  natural '  than  that  prices  should  rise  ?  say 
the  authorities,  who  believe  in  giving  free  play  to  the  law  of 
supply  and  demand  when  there  is  a  shortage.  Thus  in  the 
Great  War  it  was  only  after  several  years,  and  when  great 
unrest  had  developed,  that  the  prices  of  necessaries  were 
controlled  by  the  governments.  These  prices,  as  we  know, 
decide  also  the  money  cost  of  production  of  both  necessaries 
and  luxuries,  as  well  as  of  war  material.  It  is  obviously  not 
so  reprehensible  to  attempt  to  profiteer  in  luxuries,  because 
the  public  soon  learn  to  go  without  them,  when  the  profiteer 
may  be  hoist  with  his  own  petard. 

We  must  not,  however,  forget  that  so  far  we  have  con- 
sidered only  a  self-contained  nation.  It  is  obvious  that  a 
nation  cannot  control  profiteering  at  its  expense  by  other 
nations,  but  it  is  clear  that  if  it  produces  its  own  necessaries 
— the  first  duty  of  a  nation  and  its  government — it  will  at  least 
remove  the  opportunity  to  do  so. 

The  production  of  its  necessaries  of  life  is  manifestly  of 


THE  INTRODUCTION  OF  MONEY 

vital  importance  to  a  nation  if  it  is  to  enjoy  a  real  independ- 
ence. From  this  point  of  view  the  importance  of  producing 
necessaries  arises  out  of  human  frailty,  and  is  not  due  to 
economic  principles. 

We  have  discussed  a  natural  cause  for  an  advance  in  prices, 
through  war,  and  one  due  to  human  frailty,  but  there  is  yet 
another  which  is  purely  artificial.  We  assumed,  for  instance, 
that  T  tokens  purchased  N,  because  every  monetary  system 
must  start  with  one  assumption,  but  had  we  decided  on  a 
larger  number  of  tokens,  say  2T,  to  purchase  N,  the  purchasing 
power  of  each  token  would  be  exactly  half.  The  selection  of 
the  primary  value  of  a  token  being  purely  arbitrary  (and  we 
have  discussed  merely  what  subsequently  decides  it  and 
causes  variation  therein)  it  is  obvious  that  the  rulers  of  a 
country  may  alter  it  at  any  time.  Thus  a  decree  that  2T 
tokens  be  paid  to  every  man  producing  his  N  would  immedi- 
ately halve  the  value  of  money,  and  all  would  have  to  receive 
more  tokens  to  enable  them  to  purchase  their  N — in  fact,  any 
arbitrary  increase  in  the  number  of  tokens  paid  for  N,  or  the 
labour  which  produces  it,  must  decrease  the  purchasing  power 
of  money,  and  only  if  increased  payment  is  followed,  pari 
passu,  by  increased  production  does  the  value  of  money  remain 
unaffected.  Herein  is  indicated  an  important  factor  in  the 
depreciation  of  the  value  of  money  during  the  War,  and  so  long 
as  present  economic  practices  and  rates  of  production  continue, 
its  recovery  is  an  impossibility.  Nevertheless,  a  nation's 
wealth  does  not  depend  upon  the  value  of  its  money,  for  if  all 
wages  were  cut  down  by  50  per  cent,  the  sovereign  would 
recover  its  greater  purchasing  power,  without,  however,  pros- 
perity being  increased. 

It  should  now  be  clear  that  not  only  the  efficiency,  but  the 
occupation  of  every  person  affects  the  value  of  money.  In 
our  so-called  civilization,  however,  it  is  actually  permitted  to 
an  individual  to  spend  his  life  and  efforts  amassing  money, 
regardless  of  the  fact  that  he  is  abstracting  it  from  the  pockets 
of  others,  and  at  the  same  time  depreciating  its  value,  e.g.,  by 
becoming  an  unessential  non-producer.  It  is  true  that  a 
variation  in  the  value  of  money  must  follow  automatically  and 

85 


THE  REAL  WEALTH  OF  NATIONS 

naturally,  even  with  a  constant  efficiency  and  ratio  of  pro- 
ducers to  non-producers,  from  good  and  bad  harvests,  new 
inventions,  etc.,  but  much  of  it  is  due  to  the  manipulation 
and  the  greed  of  man,  etc.,  as  is  still  more  evident  when  we 
consider  wages,  the  introduction  of  which  enormously  extended 
the  pernicious  habit  of  thinking  in  terms  of  money. 

Although  money  is  not  the  root  of  all  evil,  the  widespread 
delusion  that  money,  whatsoever  its  form,  is  wealth  (a  paper 
to  prove  that  gold  is  wealth  was  read  in  1918  before  a 
learned  society)  is  responsible  for  many  other  misconceptions. 
This  constant  thinking  in  terms  of  money  as  wealth  has  led 
mankind  to  try  to  make  money,  to  get  more  of  it,  to  get  rich 
in  money,  although  we  have  seen  that  this  can  only  be  done 
at  the  expense  of  another,  or  of  all  others.  The  counterfeiter 
is  looked  upon  as  the  concern  of  the  Government,  yet  if  suc- 
cessful it  is  the  money  in  the  individual's  pockets  that  he 
depreciates,  but  so  does  every  non-essential  middleman.  On 
the  other  hand,  the  man  who  makes  wealth,  unless  he  keep 
it  all  to  himself,  which  is  not  possible  in  a  civilized  com- 
munity, benefits  not  only  himself  but  all  his  fellows,  by 
increasing  the  value  of  money. 

Similarly,  while  extravagance  in  money  only  hurts  indi- 
viduals for  the  benefit  of  others,  waste  of  commodities  is  a 
crime  against  the  community. 

As  examples  of  the  confusion  between  money  and  wealth,  we 
may  cite  a  contents  bill  of  a  leading  London  financial  journal : 
"  MONEY  STILL  TO  BE  MADE."  An  author  of  books  on  Recon- 
struction and  International  Relationship  speaks  of  '  spinning  ' 
money,  and  the  expression,  "  London  the  centre  of  the  World's 
Money  Market,"  is  well  known.  Now  to  '  make  '  or  to  '  spin  ' 
money  savours  of  counterfeiting,  or  legerdemain,  and  that 
such  ideas  are  widespread  is  shown  by  the  issue,  and  booming 
in  the  public  press  in  1918,  of  a  book  entitled  The  Great  Plan, 
wherein  payment  for  the  War,  without  hardship  to  anyone, 
was  to  be  effected  by  means  of  an  issue  of  £50,000,000,000 
worth  of  bonds  guaranteed  by  the  Allies  ! 

The  same  illusions  are  also  responsible  for  the  belief  that 
Germany  cannot  pay  the  full  cost  of  the  War,  and  that  she  can 
86 


THE  INTRODUCTION  OF  MONEY 

only  pay  in  money  or  gold.  Yet  German  money,  if  to  be  any 
use  to  us,  must  ultimately  go  back  there  to  purchase  German 
goods,  the  price  of  which  she  could  then  advance  against  us 
artificially.  Nevertheless  it  is  obvious  that  the  real  limit  of 
her  annual  contribution  is  her  total  production  less  only  the 
necessaries  of  life  meantime  of  all  her  inhabitants,  and  that  it 
is  independent  of  her  supply  of  money.  Now  an  Austrian 
economist  has  suggested  that,  with  modern  methods  of  pro- 
duction, a  nation  can  produce  its  daily  necessaries  of  life  in 
an  average  working  day  of  only  two  hours,  so  that  if  this  be 
true,  and  we  calculate  the  money  value  of  those  of  Germany 
to-day  at,  say,  £1,500,000,000  per  annum,  did  she  work  a 
ten-hour  day  (and  why  not  until  she  has  paid  for  her 
crimes?),  she  could  contribute  annually  goods  to  the  value 
of  £6,000,000,000  even  after  allowance  for  the  seizure  of  her 
irreplaceable  raw  material  such  as  coal,  potash,  iron  ore,  etc. 

We  will  not  disprove  here  the  childish  idea,  although  held 
by  many,  that  a  nation  surfers  in  its  industries  through  receiving 
goods  for  nothing,  beyond  recalling  that  an  ill-paid  chorus 
girl  when  she  is  given  an  extravagant  box  of  chocolates,  or  an 
unrealizable  ornament,  instead  of  more  mundane  commodities, 
or  the  money  wherewith  to  buy  them,  also  receives  an  ill- 
chosen  gratuity.  It  is  sufficient  to  say  that  the  Allies,  not 
Germany,  should  decide  the  quality  and  kind  of  goods  by 
which  payment  is  to  be  made.  We  shall  return  to  this  question 
in  a  later  chapter. 

On  the  other  hand,  in  spite  of  this  confusion  between 
money  and  wealth,  we  despise  the  money-lender,  and,  indeed, 
some  include  bankers,  who  do  not  even  lend  their  own  money, 
in  this  category.  But  if  money  be  a  token  for  goods,  there 
is  no  economic  difference  between  handling  the  tokens  for 
wealth  or  the  wealth  itself,  or  between  the  money-lender  and 
the  middleman.  No  one  would  have  a  word  to  say  against  a 
man  who  lends  money  free  of  charge,  from  which  we  deduce 
that  we  begrudge  and  despise  the  profit  of  the  money-handler, 
but  overlook  that  of  the  wealth-handler,  although  in  both  cases 
the  profit,  as  we  know,  is  made  at  the  expense  of  others,  and 
therefore,  when  exorbitant,  is  a  cause  of  justifiable  resentment. 

8? 


CHAPTER   VIII 

THE  NECESSITY  FOR  WAGES,  AND  THEIR  RELATION 
TO  PRICES 

THE    INTRODUCTION    OF   WAGES.— The   misconceptions 
referred   to  in   the   previous   chapter  are  accentuated 
by    the    introduction  of  wages,  and  we  will  therefore 
consider  the  origin  of  the  latter. 

If  every  man  worked  for  himself,  and  produced  all  he 
wanted,  both  necessaries  and  luxuries,  there  would  be  no  need 
for  money.  So  soon,  however,  as  a  subdivision  of  labour  is 
introduced,  whereby  a  man  produces  one  article  only,  such 
as  a  table,  money  or  tokens  are  wanted,  as  we  have  seen,  in 
order  to  enable  him  to  exchange  his  single  product  for  his 
various  requirements. 

In  order  to  extend  efficiency  of  production,  a  further  sub- 
division of  labour  was  introduced  whereby  a  number  of  men, 
instead  of  producing  different  complete  articles,  work  upon 
details  only,  the  parts  being  later  combined  in  order  to 
produce  a  complete  and  saleable  whole.  The  introduction  of 
machinery  made  such  combination  an  economic  necessity  ; 
without  it,  efficient  production  would  be  impossible,  and 
increase  in  skill  through  specialization  unattainable. 

For  instance,  if  a  number  of  men  combine  to  make  tables 
under  one  roof,  one  of  their  number  makes  the  legs,  another 
the  tops,  another  the  drawers,  another  does  the  polishing,  etc. 
One  of  their  number  undertakes  to  sell  the  finished  product, 
and  he  obtains  in  exchange  a  number  of  tokens,  or  payment 
in  money,  which  he  must  divide  among  all.  The  share  each 
receives  is  his  wage,  the  existence  of  which  is  due,  therefore, 
to  that  combination  of  workers  necessitated  by  a  further  sub- 
division of  labour  for  a  greater  wealth-production,  whereby 
men  make  parts  of,  instead  of  complete,  articles. 
88 


THE  NECESSITY  FOR  WAGES 

Thus,  we  see,  firstly,  that  the  existence  of  money  is  made 
essential  by  a  subdivision  of  labour  ;  secondly,  that  a  further 
subdivision  necessitates  the  introduction  of  wages ;  yet,  the 
term  '  wage-slavery  '  is  often  used,  as  though  the  receipt  of 
wages  were  an  indication  of  slavery,  instead,  as  we  have 
shown,  of  being  the  logical  economic  result  of  a  subdivision 
of  labour  for  a  greater  wealth-production,  from  which  the 
whole  community  should  benefit. 

The  only  explanation  we  can  suggest  for  the  existence  of 
these  delusions  concerning  money  and  wages  is  the  fact  that 
in  no  other  science  but  that  of  economics  is  it  customary  for 
the  student  to  start  in  the  middle  or  at  the  end  and  work 
backward  ;  were  this  permitted,  for  instance,  in  physics  or 
mathematics,  even  the  most  intelligent  would  find  the  greatest 
difficulty  in  mastering  them.  Because  economics  deals  with 
matters  of  everyday  life  the  individual  often  approaches  the 
subject  with  more  courage  than  discretion,  and  from  his  own 
personal  or  prejudiced  point  of  view,  making  startling  assump- 
tions which  are  at  total  variance  with  the  fundamental  facts 
of  existence,  or  the  real  laws  of  economics,  and  arriving, 
naturally,  at  absurd  conclusions. 

We  have  already  seen  that  the  value  of  money  is  shown  by 
the  number  of  tokens  required  to  purchase  man's  daily  neces- 
saries of  life,  and  that  the  fewer  the  total  labour-hours  of  the 
whole  population  required  to  produce  these  necessaries, 
assuming  a  constant  ratio  of  producers  to  non-producers,  the 
higher  the  value  of  money.  This  truth  is  also  apparent  when 
we  realize  that  the  cost  of  producing  necessaries  is  proportion- 
ate to  the  number  of  hours  worked  in  obtaining  them.  For 
instance,  if  a  man  produce  his  necessaries  of  life  in  six  hours, 
he  requires  a  certain  amount  of  food,  etc.,  for  six  hours'  work, 
and  if  he  produce  them  in  three  hours,  his  cost  is  exactly 
halved,  assuming  the  result  be  due  to  more  efficient  methods, 
and  not  merely  to  greater  physical  exertion. 

Having  seen  how  the  value  of  money  is  decided,  it  is 
evident  that,  wages  being  paid  in  money,  their  value  also 
must  vary,  pari  passu,  with  that  of  money,  and  the  number 
of  wage-earners  and  their  power,  compared  with  the  rest  of 


THE  REAL  WEALTH  OF  NATIONS 

the  population,  is  so  large  that  a  careful  consideration  of 
the  relation  between  wages  and  prices  is  necessary,  even  if  it 
should  entail  some  repetition. 

Higher  wages  are  evidently  of  no  greater  value  if  followed 
by  proportionately  higher  prices,  and,  conversely,  lower  wages, 
if  prices  fell  more  rapidly  than  wages,  would  actually  be  an 
advantage  to  the  wage-earners.  Let  us  therefore  consider 
wages  constant,  and  see  how  their  purchasing  power  can  be 
increased,  this  being  the  equivalent  of  a  higher  wage  without 
an  increase  in  prices. 

THE  RELATION  BETWEEN  WAGES  AND  PRICES. — The  most 
unskilled  worker  is  entitled  to  receive  daily  sufficient  tokens  to 
enable  him  to  buy  his  complete  day's  necessaries  of  life.  If  N 
be  the  necessaries  of  life  and  a  man  take  ten  hours  to  produce 
them,  and  receive  therefor  T  tokens,  in  an  exchange  of 
necessaries  T  tokens  must  purchase  a  complete  day's  supply, 
and  the  value  of  money  is  thereby  defined.  If  now  the  workers, 
through  increased  efficiency,  be  enabled  to  produce  their  neces- 
saries in  five  hours,  or  to  produce  2N  per  day  and  each 
worker  still  receive  T  tokens — that  is,  the  same  wages — these 
must  enable  him  to  buy  a  quantity  of  necessaries  similar  to  his 
own  production,  so  that,  as  he  is  producing  2N,  T  must 
now  purchase  2N.  In  other  words,  the  value  of  money  is 
doubled,  and  the  worker  is  twice  as  well  off  with  the  same 
wages,  because  he  has  doubled  his  output. 

Expressed  otherwise,  tokens,  or  wages,  are  given  to  a  man 
primarily  to  enable  him  to  purchase  his  complete  necessaries 
of  life,  and  the  less  time  he  requires  to  produce  them — i.e., 
the  share,  equal  to  N,  which  his  relationship  to  the  community 
entitles  him  to  retain  to  himself — the  fewer  necessaries  he 
consumes  in  that  process,  and  the  fewer  tokens  he  requires 
wherewith  to  buy  them.  The  balance  of  necessaries  as  of 
tokens  then  provides  him  with  a  daily  supply  either  of  leisure 
or  luxuries. 

Or,  again,  if  a  man  be  producing  necessaries  of  life  for  a 
future  provision,  which  owing  to  seasons  and  harvests  is  actually 
what  he  does,  he  must  receive  enough  tokens  to  purchase 
his  immediate  needs  while  engaged  in  such  production.  The 
90 


THE  NECESSITY  FOR  WAGES 

more  quickly  he  produces  them,  the  smaller  the  number  of 
tokens  he  will  require.  Thus,  once  more,  if  a  man  take  3000 
hours  to  produce  that  which  he  exchanges  for  his  year's 
necessaries  of  life  and  receive  therefor  300  T  tokens,  should 
he  learn  to  produce  the  same  in  1500  hours,  the  value  of  the 
300  T  tokens  is  doubled,  for  they  will  purchase  him  leisure,  or, 
alternatively,  other  commodities  in  addition  to  his  necessaries. 
We  have  already  seen  that  aH  men  are  not  producers  of 
necessaries,  and  it  is  evident  that  the  non-producers  must  also 
be  allowed  their  necessaries  of  life,  and  that  such  can  be  pro- 
vided only  by  the  producers.  Consequently  the  latter  cannot 
retain  for  themselves  the  whole  of  their  produce,  and  were 
half  the  population  producers  and  half  non-producers,  the 
former  would  have  to  surrender  half  the  result  of  their  labour. 
If  now  the  above-mentioned  producers  of  double  their  original 
efficiency  have  to  surrender  half  their  production  for  the 
benefit  of  the  non-producers,  and  receive  for  the  remaining 
half  the  same  number  of  tokens  (T),  they  are  only  entitled  to 
receive  from  another  producer  half  his  production  also.  In 
other  words,  the  value  of  money  is  now  reduced  to  what  it  was 
before  the  increased  production,  and  we  may  say  again  that  it 
varies  in  inverse  proportion  to  the  average  number  of  hours 
the  producers  of  necessaries  have  to  work  to  provide  them  for 
the  whole  population. 

Thus,  were  all  men  producers,  a  double  production  of 
necessaries  would  double  the  value  of  money,  whereas  if  the 
number  of  non-producers  were  simultaneously  doubled,  owing 
to  a  producer  being  then  only  entitled  to  retain  half  his 
product  for  himself,  the  whole  increase  in  the  value  of  money 
would  be  annulled. 

So  far  we  have  considered  only  necessaries,  but  human 
beings  desire  also  luxuries,  and  it  is  obvious  that  they  are  to 
be  obtained  and  paid  for  only  by  working  longer  hours,  and 
that  the  fewer  the  people  required  for  the  production  of  the 
necessaries  of  the  whole  population,  the  more  labour  will 
be  available  to  produce  luxuries.  Further,  as  we  saw  in 
the  previous  chapter,  the  cost  of  producing  luxuries  being 
the  consumption  of  necessaries,  the  cheaper  the  latter  are, 

91 


THE  REAL  WEALTH  OF  NATIONS 

the  cheaper  also  will  be  luxuries,  other  conditions  remaining 
unaltered. 

Nevertheless,  just  as  the  value  of  money  for  the  purchase  of 
necessaries,  which  is  of  primary  importance,  varies  with  the 
efficiency  of  production  of  necessaries,  so  that  for  the  purchase 
of  luxuries,  which  we  insist  on  having,  depends  also  upon 
their  rate  of  production.  Now  in  order  to  produce  luxuries 
we  must  divert  labour  from  the  production  of  necessaries,  and 
by  so  doing,  as  in  the  case  of  the  handlers  of  wealth,  depreciate 
the  value  of  money  for  the  purchase  of  necessaries.  To  obtain 
luxuries,  that  is,  we  are  obliged  to  sacrifice  some  cheapness  of 
necessaries,  or,  in  other  words,  to  work  longer  hours. 

It  is  consequently  clear  that  with  a  constant  wage,  its 
value  for  the  purchase  of  both  necessaries  and  luxuries  rises 
with  the  output  both  of  necessaries  and  of  luxuries,  and  also 
with  a  reduction  in  the  relative  number  of  non-producers, 
and  an  improvement  in  the  relation  of  wages  to  prices  can 
only  be  anticipated  from  a  recognition  of  these  fundamental 
principles. 

We  have  already  alluded  to  the  deplorable  habit  of  think- 
ing in  terms  of  money,  and  as  wages  are  nowadays  paid  in 
money  (perhaps  that  is  one  explanation  of  the  growth  of  this 
habit),  it  is  also  common  to  think  in  terms  of  wages.  Thus, 
as  we  compete  with  one  another  to  obtain  money,  so  are  we 
ever  striving  to  get  higher  wages,  or  salaries  ;  yes,  each  one 
of  us ;  yet  as  the  value  of  wages  varies  with  that  of  money,  it 
is  obvious  that  we  may  be  actually  worse  off  when  receiving 
higher  wages. 

In  order  to  consider  one  question  at  a  time,  we  have 
imagined  wages  constant  and  have  discovered  the  reason  for 
the  fluctuations  in  the  value  of  money  and  found  that  the 
value  of  our  '  constant '  wage  must  necessarily  follow  the  same 
curve,  so  that  our  wages  and  our  salaries  will  be  worth  more 
to  us  without  the  trouble  of  asking  for  a  rise  :  (i)  through  a 
greater  efficiency  in  the  production  of  the  necessaries  of  life  ; 

(2)  through  a  greater  efficiency  in  the  production  of  luxuries  ; 

(3)  through  a  reduction  to  the  irreducible  minimum  in  the 
number  of  non-producers  or  wealth-handlers. 

92 


THE  NECESSITY  FOR  WAGES 

To  obtain  the  advantages  of  higher  wages  it  is  therefore 
only  essential  to  increase  the  efficiency  of  production,  pri- 
marily of  the  necessaries  of  life,  and  to  compel  efficiency  from 
the  handlers  of  both  necessaries  and  luxuries,  and  to  limit  their 
number. 

If  this  be  true,  it  is  surely  remarkable  that  never  do  the 
wage-earners  clamour  to  have  the  value  of  their  wages  raised  ; 
on  the  contrary,  they  demand  higher  wages  with  a  less  pro- 
duction, i.e.,  wages  of  a  lower  value  ;  in  fact,  if  we  reverse  our 
assumption  and  consider  a  constant  production  with  higher 
wages,  say  every  man's  wages  increased  by  50  per  cent., 
then  1^2"  tokens  must  be  paid  for  N,  the  value  of  money 
would  be  as  2  is  to  3,  and  no  one  would  be  better  off. 

The  explanation  of  this  futility  lies  in  the  general  lack  of 
economic  knowledge  and  the  application  of  that  injunction  : 
"  Each  man  for  himself,  and  the  devil  take  the  hindmost," 
which  is  what  the  law  of  supply  and  demand  amounts  to ; 
and,  in  truth,  those  who  clamour  for  a  higher  wage,  regard- 
less of  whether  their  work  is  worth  more  or  not,  are  indif- 
ferent as  to  whether  every  one  is  to  be  better  off,  otherwise 
they  would  insist  upon  a  greater  production  and  a  lesser 
handling  of  wealth,  which  alone  can  benefit  all. 

Further,  the  result  of  increasing  the  wages  of  one  class  of 
workers,  while  their  output  remains  stationary,  is  merely  to 
benefit  them  at  the  expense  of  the  rest  of  the  community  by 
depreciating  the  value  of  money  generally  ;  other  workers 
must  suffer  until  they  too  have  obtained  a  like  increase, 
when  no  one  will  be  better  off  than  originally,  and  this 
game  of  see-saw,  with  its  constant  friction  and  waste,  must 
continue  until  the  truth  is  faced,  and  the  relation  of  wages  to 
production  and  production  to  price  is  understood. 

In  the  foregoing  we  have  contemplated  only  a  self-contained 
nation  producing  all  its  own  necessaries  and  luxuries,  and 
performing  also  all  its  own  most  menial  tasks,  so  that  only  a 
reduction  in  the  number  of  non-producers  and  a  higher  efficiency 
in  production,  primarily  of  necessaries,  can  add  to  the  total 
value  produced,  or  improve  the  relation  between  wages  and 
prices. 

93 


THE  REAL  WEALTH  OF  NATIONS 

Indeed,  a  self-contained  nation  being  compelled  to  provide 
all  its  own  wants,  the  only  choice  open  to  it  in  regard  to  its 
occupation  or  production  is  in  the  matter  of  what  luxuries  are 
to  be  made  available. 

On  the  other  hand,  in  considering  international  economics, 
we  shall  find  that  it  is  in  a  nation's  power  to  choose  its  industries, 
developing  some  beyond  its  own  needs  and  dropping  others 
altogether,  and  by  so  doing  still  further  to  increase  its  wealth- 
production. 

So  far  we  have  not  discussed  the  relations  between  the 
various  classes  of  wage-earners  into  which  we  have  imagined 
the  population  divided,  but  have  assumed  an  average  equality, 
because  the  total  of  the  divisible  wealth,  or  well-being,  is  not 
affected  by  differences  between  the  classes.  As,  however, 
misunderstanding  more  easily  arises  out  of  division  of  the 
spoils,  or  sharing  out,  than  regarding  questions  of  production, 
it  is  at  least  equally  important  to  consider  the  principles  which 
must  govern  the  distribution  of  wealth, 


94 


CHAPTER   IX 

THE  DISTRIBUTION  OF  WEALTH 

THE  problem  of  the  distribution  of  wealth  may  be  com- 
pared to  that  of  sex,  which  is  eternal,  rather  than  to 
that  of  the  poor,  for  the  latter  are  always  with  us 
only  because  those  who  have  posed  as  authorities  upon  the 
distribution  of  man-wealth  have  been  ignorant  as  to  its  true 
source. 

Given  wealth,  how  is  it  to  be  distributed  ?  is  a  most  attrac- 
tive question.  Those  who  have  it  are  content ;  those  without  it 
cry  out  for  a  share,  yet,  if  the  clamourers  succeed  in  reversing 
the  position,  assuredly  everyone  will  still  not  be  satisfied. 

The  producers  of  wealth  are  silent  on  the  subject,  whence 
it  appears  that  even  they  have  not  grasped  the  first  principle 
that  equitable  distribution  must  depend  upon  the  origin  of 
wealth.  For  instance,  we  have  been  obliged  to  distinguish 
between  natural  wealth  and  man-wealth,  yet  few  economists 
appear  to  recognize  any  difference,  although  surely  no  man 
can  claim  a  right  to  monopolize  that  which  existed  without 
his  intervention.  Coal,  for  instance,  belongs  to  the  nation, 
and  the  spectacle  of  colliery-owners  and  miners  quarrelling 
over  the  disposal  of  profits,  while  the  rest  of  the  nation  takes 
sides,  instead  of  the  profits,  must  provide  the  economic  angels 
with  much  amusement. 

Natural  wealth  belongs  to  no  individual,  but  he  who 
makes  it  available  has  at  least  some  claim  to  recognition,  if, 
indeed,  it  be  due  to  his  own  efforts.  On  the  other  hand,  the 
man  who  produces  wealth  which  was  previously  non-existent 
might  claim  the  whole  of  it,  and  no  one  gainsay  him,  for 
his  fellows  are  not  worse  off  than  they  were  before ;  and  if, 
indeed,  he  be  not  entitled  to  it  all,  is  the  man  who  produces  no 

95 


THE  REAL  WEALTH  OF  NATIONS 

wealth  entitled  to  any  ?  Between  these  two  extremes  lies  the 
whole  question  of  the  distribution  of  man-wealth,  which  is 
obviously  incapable  of  definite  solution.  No  laws  of  wealth- 
distribution  can  exist,  for  although  religion  and  sociology 
enjoin  that  we  have  a  duty  toward  our  neighbour,  which  must 
impel  the  fortunate  to  help  the  unfortunate,  they  cannot 
advocate  the  despoiling  of  the  deserving  for  the  benefit  of  the 
undeserving. 

On  the  contrary,  we  may  cite  the  patent  laws,  common  to 
every  country,  whereby  an  inventor  who  makes  a  discovery 
or  effects  an  improvement  is  allowed  to  control  his  patent 
during  a  term  of  years  in  order  that  he  may  reap  a  reward. 
It  would  be  manifestly  impossible  to  say  that  any  fixed  definite 
term  is  a  fair  one,  either  to  the  individual  or  to  the  community, 
or  to  fix  the  extent  to  which  a  patentee  should  benefit,  because 
an  invention  might  be  the  result  of  thousands  of  hours  of  toil, 
or  of  a  moment's  inspiration  ;  it  might  result  in  immediate  and 
enormous  profits,  or  remain  unappreciated  by  the  generation 
that  received  it ;  and  most  important  of  all,  it  may  benefit  or 
harm  the  community  for  evermore. 

It  is,  indeed,  true  that  men  are  actually  allowed  to  make 
fortunes  out  of  harmful  or  fraudulent  inventions,  another 
manifestation  of  liberty  which  is  due  to  the  craze  for  money- 
making  as  against  wealth-creating,  and  to  the  fact  that  at 
present  it  is  not  recognized  that  the  inventor's  personal 
reward  should  depend  upon  the  value  of  his  service  to  his 
fellows — i.e.,  both  parties  must  benefit.  Again  we  see  the 
importance  of  a  unit  of  value  independent  of  demand,  which, 
by  enabling  us  to  judge  the  gain  of  economic  wealth  over  a 
term  of  years,  permits  us  to  compare  the  advantage  of  the 
individual  with  that  of  the  nation.  The  contentment  of  a 
man  with  his  reward  must  depend  always  upon  his  altruistic 
education,  and  the  more  civilized  a  nation,  the  more  ready  it 
should  be  to  reward  the  pioneers  of  progress.  For  example, 
extension  of  patents  should  be  more  readily  granted,  with  of 
course  the  necessary  safeguards. 

But  for  the  existence  of  superior  men,  wealth  should  and 
would  have  remained  equally  distributed  (although,  alas  1 


THE  DISTRIBUTION  OF  WEALTH 

there  would  be  no  man-wealth  to  share,  for  its  existence  is 
only  due  to  the  superiority  of  some  men) ;  but,  as  man  is  un- 
equal also  in  his  spending,  the  distribution  would  eventually 
become  so,  even  if,  in  the  first  instance,  all  had  received 
identical  shares. 

We  have  seen  that  civilization  itself  is  due  to  the  work  of 
superior  men,  resulting  in  an  unequal  production  of  wealth, 
and  the  importance  of  a  unit  of  value  independent  of  demand 
is  once  more  apparent,  for  only  if  we  know  to  whom  the  wealth 
is  due,  and  how  to  measure  its  amount,  have  we  a  basis  from 
which  to  consider  its  distribution. 

If  no  man  produces  wealth,  there  will  be  none  to  share, 
yet  when  some  men  do,  it  would  appear  just,  both  morally 
and  economically,  that  those  who  produce  equally  should 
share  equally.  Thus,  in  all  occupations,  ignoring  for  a  moment 
our  social  obligations,  each  man,  whether  producer  or  non- 
producer,  should  be  rewarded  according  to  his  skill  and  brains, 
to  which,  as  we  have  seen,  all  production  of  man-wealth  is 
due. 

Nevertheless,  this  is  not  possible  quite  universally.  We 
can  compare,  for  instance,  the  skill  of  two  manual  workers  by 
the  quantity  and  quality  of  their  output,  and  also  that  of  brain- 
workers,  when  the  result  appears  in  material  commodities,  or 
labour-saving  ;  the  reward  of  the  creator  of  beauty,  or  of 
joy-wealth,  in  many  forms,  however,  must  remain  a  matter 
of  opinion,  or  lie  in  the  hands  of  his  fellows.  The  greatest  man 
may  starve  in  his  garret,  and  after  his  death  a  fortune  may 
be  reaped  from  his  work  by  a  man  of  no  deserts,  but  such 
questions  are  beyond  the  scope  of  our  present  subject. 

A  true  conception  of  the  economic  meaning  of  skill  is  of 
vital  importance.  Let  us  define  an  unskilled  man  as  one  who 
by  his  unaided  efforts,  can  produce  only  his  daily  necessaries 
of  life.  He  must  be  able  to  do  this,  as  otherwise  he  would 
starve,  and  his  necessaries,  as  we  know,  must  also  include 
sufficient  for  his  dependent  family  during  part  of  their  life, 
or  his  race  would  die  out.  The  first  man  who  produces  more 
than  his  necessaries  is  skilled.  He  may  be  merely  more 
energetic  physically,  but  we  make  no  distinction  between 

97 


THE  REAL  WEALTH  OF  NATIONS 

energy  of  hand  or  brain,  although  it  is  obvious  that  while  man 
soon  reaches  the  limit  of  bodily  capacity,  the  activity  of  his 
brain  is  almost  unlimited.  Our  friend  the  spade-maker  was 
skilled,  and  through  his  invention  all  his  fellows  were  enabled 
to  produce  more  than  their  necessaries.  Were  they  then 
skilled  ?  Not  a  bit  of  it,  but  the  spade,  the  outward  and 
visible  symbol  of  the  skill  of  another,  enabled  them  to  rise 
above  the  first  primitive  level.  Skill  must  therefore  always 
be  a  relative,  although  a  quite  definite  term,  and  a  skilled 
worker  to-day  may  be  considered  unskilled  in  ten  years,  for 
skill,  education,  and  civilization  go  hand  in  hand. 

Although  we  can  generally  measure  the  skill  of  producers  by 
their  output,  as  the  subdivision  of  labour  introduced  non- 
producers,  we  shall  have  to  find  some  means  of  comparison  also. 

The  question  is  not  so  difficult  as  it  appears.  The  manual 
worker,  not  engaged  on  production,  rarely  does  work  calling 
for  much  brain  or  training,  and  we  need  only  ask  ourselves, 
What  would  this  man  be  fit  for  as  a  producer  ?  To  learn  to 
do  one  job  mechanically  is  not  a  sign  of  skill,  in  fact  the  man 
without  implements  is  probably  superior  in  many  ways,  and 
the  expression  semi-skilled  for  such  people  is  therefore  a 
misnomer. 

It  is  more  difficult  to  compare  brain-workers,  yet  here  also 
it  is  possible  in  many  cases  to  judge  by  results.  A  good 
organizer  saves  labour  in  any  walk  of  life,  and  his  skill,  or 
the  value  of  his  service,  is  measured  by  the  total  number  of 
man-hours  saved  by  it. 

It  is  possible,  therefore,  to  compare  the  skill  of  a  producer 
and  a  non-producer,  a  clerk  and  a  machine  hand,  providing 
we  do  not  forget  how  they  became  skilled,  but  it  is  sometimes 
more  difficult  to  gauge  the  comparative  skill  of  various  classes 
of  producers. 

For  instance,  nowadays  each  worker  does  not  depend 
upon  his  unaided  efforts,  but  implements  and  machines  are 
provided  for  him  which  enable  him  to  increase  his  output. 
Although,  therefore,  the  skill  of  two  men  on  identical  machines 
can  be  compared,  their  rank  in  the  world  of  skill  is  not  indi- 
cated by  their  output  at  all,  this  being  due  to  the  brains  of 


THE  DISTRIBUTION  OF  WEALTH 

engineers,  designers,  tool-makers,  etc.  In  fact,  the  unskilled 
or  one-job  manual  worker  no  more  produces  the  wealth  (i.e., 
the  surplus  output  beyond  that  of  a  man  without  machines) 
than  does  the  lubricating  oil  which  is  equally  as  essential  as  the 
unskilled  labour. 

When  we  compare  the  skill,  or  output  value,  of  the  machine- 
worker  with  that  of  the  tool-maker,  using  both  hand  and 
brain,  we  see  that  the  latter  is  the  more  skilled  because  he 
can  replace  the  former,  who,  left  to  himself,  would  be  lost. 
Although,  therefore,  we  cannot  say  that  the  whole  produc- 
tion is  due  to  the  tool-maker,  we  see  that  the  latter  is  the  more 
skilled,  and  should  therefore  receive  a  higher  share  of  the  joint 
reward,  and  while  we  are  not  able  to  fix  the  exact  propor- 
tion, it  is  at  least  clear  that  he  should  get  more  than  even  the 
most  efficient  one-job  manual  worker. 

It  is  easy  to  object  that  a  delicate  tool-maker  could  not  do 
the  work  of  a  navvy,  but  equally  unanswerable  that  a  nation 
of  navvies  would  be  uncivilized  as  compared  with  one  of  brain- 
workers,  and  if  wealth  be  due  to  skill,  brains,  or  mind,  we 
must  assume  two  people  of  equal  physical  capacity  and  unequal 
mind,  or  vice  versa,  and  not  confuse  the  issue  by  considering 
two  variables  at  one  and  the  same  time. 

The  distribution  of  wealth  thus,  again,  depends  upon 
altruistic  education,  for  the  reward  we  must  promise  a  man 
to  induce  him  to  work  to  improve  himself,  and  do  more  than 
he  is  asked  to  do,  not  just  enough  to  rub  along,  decides  also 
the  share  of  his  fellows.  To  whatever  standard  education  is 
improved,  some  men  will  always  be  quicker  than  others  to 
take  advantage  of  their  opportunities,  and  must  therefore 
always  receive  a  greater  reward,  for  alternatively  we  should 
be  placing  a  premium  on  laziness,  stupidity,  or  brute  force. 

If,  then,  each  man  were  rewarded  strictly  according  to  his 
skill,  and  the  unskilled,  who  produce  no  wealth,  received 
merely  their  bare  necessaries  of  life,  we  should  indeed  have 
an  economic  distribution,  but  not  one  which  recognizes  any 
altruistic  obligation  of  man  toward  his  fellows.  Assuming, 
however,  that  the  producers  of  wealth  do  accept  such  an 
obligation,  it  is  surely  incumbent  on  the  beneficiaries  to 

99 


THE  REAL  WEALTH  OF  NATIONS 

recognize  the  nature  of  the  benefits  so  obtained,  and  their 
utter  failure  to  do  so  is  the  true  explanation  of  our  slow 
progress  in  altruistic  education. 

To  endeavour  to  tear  away  by  force,  without  a  'thank 
you/  that  to  which  we  have  no  right,  is  surely  not  the  best 
way  to  stimulate  the  efforts  of  those  to  whom  that  wealth- 
production  which  benefits  all  is  due.  To  tell  the  producer 
of  wealth,  the  man  who  develops  the  best  in  him  by  laborious 
days  and  nights,  that  the  more  he  produces  the  more  will 
be  torn  from  him  is  a  curious  form  of  encouragement.  Yet 
that  is  the  present  attitude  of  one  class  toward  another,  and, 
if  persisted  in,  it  must  result  in  killing  the  goose  that  lays  the 
golden  eggs  ;  only  by  recognition  and  appreciation  of  the 
source  of  wealth  and  its  producers  can  class  warfare  'be 
abolished.  Statues  have  been  erected  to  the  memory  of  many 
'  philanthropists  '  for  returning  part  of  that  which  they  had 
stolen,  but  we  have  yet  to  learn  to  honour  those  producers 
of  wealth  who  are  content  to  share  their  creation  with  their 
fellow-men. 

THE  EFFECT  OF  INCREASED  PRODUCTION. — Having  con- 
sidered the  question  of  relative  distribution,  and  found  that  it 
must  always  remain  a  matter  of  opinion,  we  now  note  that 
the  amount  of  wealth  available  for  distribution  is  of  primary 
importance,  whence  it  is  more  necessary  to  encourage  the 
skilled  producers  and  workers,  by  whom  wealth  is  created, 
than  to  satisfy  the  unskilled,  who,  with  unaltered  distribution, 
must  also  benefit  by  increased  production. 

When  considering  the  relation  between  wages  and  prices, 
we  found  that  with  wages  constant  their  value,  and  that  of 
money,  increased  with  efficiency,  and  that  the  work  of  the 
skilled  helped  also  the  unskilled,  so  that  on  both  sides  it  is 
a  matter  of  education,  the  skilled  to  share  with  their  less  for- 
tunate brothers,  the  latter  to  appreciate  the  source  of  their 
welfare. 

The  question  of  taxation  is  allied  to  that  of  distribution, 
and  dependent  on  the  same  principles,  which  must  decide  the 
contribution  of  each  individual.  Civilization  requires  man- 
agement or  government,  so  that  a  certain  proportion  of  a 
100 


THE  DISTRIBUTION  OF  WEALTH 

population  is  engaged  on  behalf  of  the  coujmiirjty  in  ^  ork 
necessitated  thereby.  Thus  the  Army  and  Navy  and  their 
upkeep  absorb  many  workers,  direct  and  indirect,  and  even 
though  it  might  be  possible  to  dispense  with  most  of  them  on 
the  institution  of  an  effective  League  of  Nations,  there  would 
remain  a  considerable  army  of  officials  engaged  on  both 
national  and  local  communal  work,  whose  number  tends  to 
increase  with  the  advance  of  civilization.  These  workers  must 
be  fed,  clothed,  and  housed,  wherefore  they  receive  salaries 
to  enable  them  to  purchase  their  requirements.  It  is  for  this 
and  the  wages  of  indirect  workers  that  we  pay  taxes,  which, 
in  the  form  of  money,  represent  that  share  of  production 
which  is  handed  over  for  the  consumption  of  those  engaged  in 
governmental  work  or  service. 

There  are  two  forms  of  taxation,  direct  and  indirect.  In  the 
latter  we  are  supposed  not  to  notice  that  we  are  being  taxed, 
thus  admitting  the  profound  truth  that  no  one  likes  paying 
taxes.  But  then  men  do  not  enjoy  giving  up  anything, 
so  that  once  more  we  see  the  need  for  altruistic  education 
that  each  one  may  contribute  willingly  his  share. 

The  importance  of  this  is  evident  when  we  realize  that  so 
soon  as  the  tax-payers  are  unwilling  to  contribute  to  the 
expense  of  government,  the  limit  of  taxation  is  reached,  for 
they  pass  on  their  burden  to  other  shoulders  perhaps  less  able 
to  bear  it  without  real  suffering. 

For  instance,  if  the  producer  be  dissatisfied  he  retains  a 
bigger  share  of  production  for  himself,  out  of  which  he  pays 
his  taxes.  The  middleman  also  asks  for  more,  so  that  so  soon 
as  the  limit  of  consent  is  reached,  those  who  control  the  manu- 
facture and  sale  of  goods  advance  prices,  which  others  are 
compelled  to  pay.  Always  the  helpless  suffer  for  the  un- 
willing, and  that  all  taxation  is  not  direct  is  due  to  economic 
childishness,  for  which  the  pretence  of  a  high  cost  of  collection 
is  merely  an  excuse. 

We  ought  to  know  who  is  paying  taxes,  how  much,  and 
why  he  is  to  pay  them. 

The  producers  must  consent  to  surrender  a  share  of  what 
they  were  entitled  to  retain  for  themselves  :  the  non-producers 

101 


THE  REAL  WEALTH  OF  NATIONS 

a  T-h^re  of^wha^  they,  receive  from  the  producers;  otherwise 
their  deiault  must  be  made  good  by  others. 

When  prices  of  commodities  are  increased  on  account  of 
taxation,  the  value  of  money  is  depreciated  thereby  and  the 
buyers  pay  the  tax  instead  of  the  sellers ;  but  we  must  not  fall 
into  the  error  of  thinking  that  the  latter  are  the  less  important : 
they  are  largely  the  men  who  produced  the  commodities 
concerned,  and  whose  labour,  therefore,  is  being  sold.  Thus, 
although  the  revenue  increases,  the  sum  total  may  remain 
ever  too  small  owing  to  the  fact  that  the  value  of  money  is 
depreciated  by  the  incidence  of  taxation  itself. 

That  this  has  not  been  generally  recognized  hitherto  is 
due  to  the  amount  of  capital  or  surplus  wealth  in  the  world, 
from  which  deficiencies,  ultimately  paid  for  by  the  willing  or 
the  helpless,  are  made  good. 

It  is  again  clear,  therefore,  that  each  individual  should  be 
educated  to  contribute  willingly  that  share  of  taxation,  large 
or  small,  which  his  relation  to  the  community  justifies.  It 
ought  to  be  thought  a  disgrace  to  pay  no  direct  taxes,  and 
although  the  wind  must  be  tempered  to  the  shorn  lamb,  we 
shall  see  when  we  consider  the  distribution  of  wealth  by 
means  of  wages  that  every  man  should  be  in  a  position  to 
contribute  his  share. 


102 


CHAPTER   X 

THE  DISTRIBUTION  OF  WEALTH  BY  WAGES,  AND  THE 
NATIONAL  VALUE  OF  INDUSTRIES 

THE  DISTRIBUTION  OF  WEALTH  BY  WAGES. — The  num- 
ber of  wage-earners,  compared  to  the  whole  working 
population,  is  so  large  that  the  payment  of  wages  offers 
the   simplest   medium   for   the    distribution   of   wealth.     We 
have  already  seen  why  wages  are  necessary,   and  how  their 
value  varies  with  that  of  money  ;    we  have  now  to  consider 
what  does,  or  should,  decide  the  amount  of  the  wage  payable, 
and  its  economic  effect. 

We  know  that  all  men  do  not  receive  equal  wages,  and 
that  none  are  satisfied  therewith,  at  least  not  for  long,  but 
although  the  payment  of  wages  and  discontent  appear  at  first 
sight  inseparable,  whence  perhaps  the  idea  of  '  wage-slavery,1 
the  question  of  an  equitable  reward  will  be  found  to  be  not 
insoluble. 

The  simplest  solution  would  be  an  equal  wage  for  all,  but, 
first,  we  have  already  seen  that  all  men  are  not  equal,  and, 
secondly,  it  is  obvious  at  a  glance  that  this  would  not  solve 
the  problem  of  discontent.  There  are  many  who  think  that 
man  must  ever  struggle  against  his  fellows,  like  dogs  over  a 
bone  (the  most  useful  dogs  do  not  always  get  the  most  bones  !), 
but  this  opinion  is  born  of  inability  to  gauge  the  relative  value 
of  men's  work. 

Let  us  once  more  begin  at  the  beginning,  and  consider  an 
uncivilized  existence  where  the  most  unskilled  man  produces 
only  his  necessaries  of  life.  Whether  he  work  for  himself  and 
exchange  his  product,  or  work  with  other  men,  getting  a  share 
of  what  is  received  for  the  whole,  his  reward  in  money  must 
be  sufficient  to  enable  him  to  purchase  his  daily  necessaries  of 

103 


THE  REAL  WEALTH  OF  NATIONS 

life  ;  and,  once  more,  if  all  men  were  equal  and  equally  un- 
skilled, all  would  receive  this  amount,  which  we  will  call  the 
Living  Wage,  and  no  more. 

We  have  already  explained  the  meaning  of  the  average 
man's  daily  necessaries  of  life,  and  need  only  say  here  that 
the  living  wage  is  its  exact  equivalent  in  money,  and,  again, 
that  we  may  consider  alternatively  one  man,  or  an  average 
family  of  man,  wife,  and  three  children.  If,  however,  our 
living  wage  correspond  to  the  needs  of  the  average  man  only, 
even  though  we  are  still  assuming  a  nation  of  miserable  un- 
skilled workers,  the  total  wages  paid  to  him  must  cover  the 
necessaries  also  of  all  his  dependents.  But  all  men  have  not 
got  dependents,  and,  unless  it  be  considered  a  virtue  to  have 
none,  and  a  vice  to  have  a  wife  and  family,  it  is  clear  that  it 
would  be  grossly  unfair  if  the  allocation  of  necessaries  were 
otherwise  than  in  strict  accordance  with  the  size  of  the  family ; 
and  if  only  just  the  total  necessaries  for  the  whole  population 
were  produced,  that  is  what  must  happen,  or  some  dependents 
would  starve  to  death. 

This  fundamental  fact  is  so  obvious  that  its  non-recognition 
is  explicable  only  by  our  chronic  habit  of  regarding  individual, 
rather  than  general,  interest.  In  the  days  of  Rome,  the  value 
of  and  obligation  in  regard  to  dependents  was  fully  recognized  ; 
witness  the  word  '  proletariat,1  which  is  derived  from  prole- 
tarius,  meaning  a  citizen  of  the  sixth  and  lowest  class,  who 
served  the  State  not  with  his  property,  but  with  his  children 
(proles,  offspring). 

Children  are,  indeed,  a  burden  to  the  individual,  yet  the 
State's  greatest  asset.  The  unmarried  man  takes  no  interest 
in,  and  sees  no  reason  why  he  should  support,  the  children  of 
others,  nor  why  he,  getting  the  same  wage  as  the  married 
man,  should  not  think  himself  a  fine  fellow  and  have  a  good 
time.  It  never  occurs  to  this  individual  that  he  was  a  child 
once,  and  that  his  parents  at  least  must  have  recognized  their 
obligations. 

The  foregoing  remarks  illustrate  the  theory  that  a  nation  gets 
the  government  it  deserves,  for  just  as  the  people  themselves 
overlook  these  obvious  truths,  so  the  government  manifests 
104 


NATIONAL  VALUE  OF  INDUSTRIES 

a  similar  ignorance  in  allowing  a  small  rebate  to  men  with 
families  (it  was  originally,  perhaps,  a  party  dodge  to  catch 
votes)  who  pay  income  tax,  instead  of  recognizing  their  right 
to  a  full  living  wage  for  each  dependent  before  they  are 
required  to  pay  any  income  tax  whatsoever. 

We  thus  arrive  at  a  preliminary  solution  of  our  problem, 
that  before  there  is  any  wealth  at  all,  it  is  clear  that  every 
man  must  receive  a  living  wage. for  himself,  and  a  further 
provision  for  everyone  dependent  upon  him.  Not  merely  is 
there  no  difficulty  in  discovering  the  number  of  the  latter  and 
in  allocating  the  right  wage,  but  the  total  wages  paid  would 
obviously  remain  unaffected,  although  now  shared  upon  an 
equitable  basis,  for  they  must  always  have  sufficed  for  all. 

The  reader  will  immediately  perceive  a  difficulty  in  the 
competition  between  a  gang  of  married  and  one  of  unmarried 
table-makers,  yet  the  remedy  is  quite  simple.  For  instance, 
if,  as  at  present,  the  number  of  dependents  is  ignored  in  the 
price  of  tables,  a  tax  could  be  levied  on  the  profits  of  the 
unmarried  gang,  to  form  a  fund  out  of  which  all  dependents 
of  the  married  table-makers  could  be  provided  for.  As  a 
result,  the  price  of  tables,  as  of  all  other  commodities,  would, 
as  it  should,  ultimately  be  based  on  the  average  number  of 
dependents.1 

1  An  interesting  article  from  Australia  comes  to  hand  as  this  book  is  going 
to  press.  It  is  from  The  Sunday  Times  of  Sydney,  and  we  append  the 
following  extract : 

"  As  things  stand,  the  sum  ascertained  to  be  the  sum  necessary  to  sustain 
a  family  of  four  is  to  be  paid  to  every  individual  male  worker,  married  or 
single,  with  or  without  children.  There  is  no  discrimination  of  any  kind. 
A  man  with  no  home  ties  and  no  responsibilities  gets,  other  things  being  equal, 
exactly  the  same  wage  as  a  man  with  a  home  and  heavy  responsibilities. 
On  the  other  hand,  men  with  large  families  receive  no  extra  consideration.  .  .  . 

"  The  Government  is  seeking  to  amend  the  law  by  substituting  for  that 
crude  and  obviously  inequitable  scheme  a  better  one  that  will  do  substantial 
justice  to  every  worker.  The  new  scheme  will  not  make  it  the  law  that 
employers  shall  pay  married  men  more  than  single  men,  because  the  immediate 
effect  of  such  a  mischievous  discrimination  would  be  to  make  it  virtually 
impossible  for  married  workers  to  get  employment  at  all,  a  thing  altogether 
preposterous  and  unthinkable.  But  the  employer  will  be  called  on  to  make 
a  certain  payment  for  every  man  he  employs,  irrespective  of  whether  the 
men  he  employs  are  married  or  unmarried.  The  fund  so  formed  will  be 
distributed  to  married  workers  in  proportion  to  the  size  of  their  families." 

105 


THE  REAL  WEALTH  OF  NATIONS 

The  vexed  question  of  equal  pay  for  men  and  women  is 
simultaneously  solved,  for  the  woman  bachelor  has  a  right 
neither  to  the  wage  of  a  widow  with  a  family,  nor  to  that  of  a 
man  who  is  the  support  of  others,  although  for  the  same  work 
she  may  claim  the  same  pay  as  a  single  man. 

It  is  indeed  curious  that,  while  in  our  assumed  poverty- 
stricken  community  there  are  sufficient  necessaries  for  all,  in 
a  so-called  civilized  and  wealthy  one  a  considerable  propor- 
tion of  the  population  should  lack  the  means  of  subsistence. 
This  state  of  affairs  appears  to  be  due,  first  to  the  disregard 
of  man's  primary  obligation  to  produce  his  own  and  the 
average  dependents'  necessaries  of  life,  or  to  do  an  equivalent 
amount  of  useful  work  (witness  the  toleration  of  beggars,  not 
to  speak  of  large  numbers  of  unnecessary  middlemen),  and 
secondly  to  an  abuse  of  liberty,  whereby  man  is  permitted 
to  buy  in  the  cheapest  market,  i.e.,  at  a  price  which  does  not 
allow  for  the  necessaries  of  the  workers  and  their  dependents. 

While  the  slave-owner  and  the  feudal  lord  necessarily  pro- 
vided for  all  their  dependents,  or  lost  the  use  of  their  labour, 
it  is  evident  that  our  gang  of  unmarried  table-makers,  if 
allowed  to  undersell  the  married,  can  compel  the  dependents 
of  the  latter  to  go  short.  No  doubt  the  introduction  of  money 
and  wages  tended  to  obscure  this  truth.  A  man  who  would 
not  deliberately  steal  another's  necessaries  sees  no  harm, 
if  he  accept  the  law  of  supply  and  demand,  in  obtaining  as 
much  money  as  he  can  and  giving  as  little  as  possible  in 
return,  because,  although  this  is  equivalent  to  despoiling  the 
weak,  the  result  of  his  action  is  not  visible  to  him. 

To  return  to  our  uncivilized  community. 

A  living  wage  is  now  provided  for  all,  yet  there  is  still  no 
prosperity,  and  we  will  therefore  advance  to  a  state  of  civi- 
lization such  as  our  own,  where  a  surplus  exists  after  providing 
for  the  total  necessaries  of  life. 

It  has  already  been  shown  that  all  wealth-production,  or 
excess  beyond  man's  daily  necessaries  of  life,  is  due  to  brains, 
skill,  or  mind,  and  that  whether  a  man  produce  for  himself 
or  exchange  the  result  of  his  labour  is  immaterial.  Further, 
our  unit  of  value  N  measures  the  wealth  produced  in  so  far 
106 


NATIONAL  VALUE   OF   INDUSTRIES 

as  it  has  any  economic  value,  and  is  not  merely  joy-wealth, 
or  a  matter  of  opinion,  so  that  we  do  know  who  produces 
wealth,  and  how  much,  and  therefore  there  should  be  no 
question  as  to  the  reward.  The  man  who  produces  wealth 
by  hand,  brain,  or  mind  is  entitled  to  a  higher  wage,  to  retain 
to  himself  before  sharing  with  others  a  part  of  the  wealth  he 
produces,  although  we  must,  of  course,  be  sure  that  he  does 
produce  it.  If  this  be  termed  the  wealth-wage,  it  is  evident 
that  its  amount  should  correspond  to  the  output,  whether 
of  man  or  woman. 

It  is  true  that,  under  this  scheme,  the  man  with  dependents 
would  have  to  share  his  wealth-wage,  and  would  therefore  still 
be  at  a  disadvantage  as  compared  with  the  single  man,  whence 
it  is  evident  that  the  latter  should  be  content  with  less,  in 
order  that  the  dependents  may  have  a  share  of  what  we  call 
the  '  amenities,'  or  all  those  things  beyond  the  mere  neces- 
saries to  which  our  present  civilization  has  accustomed  us. 
If  we  recognize  the  right  to  existence  and  thereby  the  living 
wage,  we  must  also  recognize  the  claim  to  a  decent  existence, 
although  at  present  we  do  not  appear  to  have  advanced  as 
far  as  either.  On  the  other  hand,  the  dependents  have  no 
right  to  an  equal  enjoyment  of  wealth  with  its  producer,  for 
although  ultimately  they  can  be  forced  to  produce  their 
own  necessaries  and  even  'amenities,'  they  may  never  become 
wealth-producers. 

In  this  the  single  man  is  evidently  again  at  an  advantage, 
but  obviously  taxation,  which  we  have  seen  affects  the  dis- 
tribution of  wealth,  and  depends  upon  altruistic  education, 
can  ultimately  compel  him  to  contribute  to  a  greater  extent 
for  the  benefit  of  dependents. 

The  producer  of  wealth,  then,  is  entitled  to  a  wealth-wage, 
dependent  upon  his  output,  and,  if  it  were  strictly  propor- 
tional thereto,  i.e.,  if  the  man  kept  all  the  wealth  which 
he  produced,  the  rest  of  the  community  would  evidently  be 
no  worse  off  than  if  he  had  produced  none  at  all.  Never- 
theless, as  we  have  already  seen,  civilization  does  not  permit 
superior  men  to  retain  all  of  the  fruits  of  their  advantage 
to  themselves,  but  compels  them  to  share  with  their  fellows, 

107 


THE  REAL  WEALTH  OF  NATIONS 

so  that  the  wealth-wage  will  vary  in  inverse  proportion 
to  altruistic  education,  sufficient  being  left  to  every  worker 
to  encourage  him  to  put  to  the  best  use  those  gifts  with  which 
Nature  has  endowed  him. 

As  we  saw  when  we  were  considering  wages,  the  skilled 
worker  must  always  receive  more  than  the  unskilled,  just  so 
much  that  he  will  be  induced  to  continue  his  efforts.  The 
less  the  amount  that  contents  him  the  better  for  the  unskilled, 
but  were  he  forced  to  surrender  his  whole  advantage  the 
effect  would  be  to  encourage  idleness  and  stupidity.  On  the 
other  hand,  inasmuch  as  the  unskilled  workers  produce  no 
wealth,  their  labour  does  not  benefit  the  skilled — in  fact,  it 
lowers  the  average  wealth  available  per  head.  Everyone 
benefits  through  the  exertion  of  the  skilled  workers,  so  long 
as  the  latter  have  a  proper  sense  of  their  social  obligation. 

Although  the  inevitableness  of  a  wealth-wage  and  its 
incidence  is  apparent,  we  find  that  in  many  instances  the 
unskilled  workers  receive  actually  higher  wages  than  the 
skilled  men  on  whom  they  are  dependent.  For  instance, 
machine-workers  paid  at  piecework  rates  receive  or  can  earn 
higher  wages  than  the  tool-makers,  and  even  the  foremen, 
although,  as  we  have  seen,  the  output  of  the  machines  is  due 
to  the  skill  or  brains  of  their  inventors.  We  dealt  with  this 
question  fully  in  Chapter  IV,  and  cited  the  practical  example 
of  an  unskilled  worker  on  a  turret  lathe. 

We  now  come  to  the  question  of  a  special  reward  to  workers 
in  unpleasant  occupations.  Let  us  call  such  an  additional 
wage  '  dirty  money,'  the  amount  of  which  must  be  sufficient 
to  attract  suitable  men,  just  as  the  reward  of  the  skilled 
worker  must  be  enough  to  encourage  progress.  We  must 
recognize,  however,  an  absolute  distinction  between  the  two, 
for  a  high  rate  of  dirty  money  does  not  correspond  with  an 
advance  of  civilization,  whereas  a  high  wealth-wage  is  equi- 
valent to  a  high  rate  of  wealth-production  and  encourages 
efficiency. 

Consider  a  railway  porter  and  a  stoker.  There  is  little 
skill  required  of  either,  for  any  ordinary  workman  of  the  right 
physique  could  quickly  learn  to  do  what  is  required  of  these 
108 


NATIONAL  VALUE   OF   INDUSTRIES 

men,  but  there  is  no  question  as  to  which  job  is  the  more 
unpleasant.  Again,  compare  the  crossing-sweeper  and  the 
sewer-man,  the  A.B.  and  the  stoker  on  a  liner,  and  we  see 
that  it  is  usually  found  to  be  necessary  to  bribe  the  unskilled 
to  do  the  unpleasant  work  of  the  community. 

It  is  clear  therefore  that,  notwithstanding  the  justice  of 
higher  pay  for  skilled  men,  some  unskilled  jobs  under  dis- 
tressing conditions  are  actually  more  highly  paid  than  skilled 
ones,  and  justly  so,  but  this  does  not  affect  our  argument 
that,  for  equal  conditions,  the  skilled  must  receive  more  than 
the  unskilled.  It  is  a  matter  of  opinion  how  much  additional 
pleasure  or  leisure  an  unpleasant  job  must  carry  to  attract 
a  man  to  volunteer  for  it,  but  the  additional  wealth  due  to 
the  skilled  worker  is  a  matter  of  fact. 

It  seems  almost  incredible,  although  true,  that  the  secre- 
tary of  a  British  skilled  trade  union  in  1918  should  have 
advocated  higher  pay  for  the  unskilled  than  the  skilled,  on 
the  ground  that  their  work  was  less  interesting.  Evidently 
he  ignored  the  origin  of  the  latter's  proficiency,  and  of  civi- 
lization, and  he  is  not  alone  in  his  tragic  delusions,  for  the 
opinion  is  commonly  held,  even  among  skilled  and  brain- 
workers,  that  the  latter  receive  more  wages  because  of  the 
'  law  of  supply  and  demand,'  or,  bluntly,  because  there  are 
fewer  of  them. 

We  have  already  exposed  the  criminality  of  this  so-called 
law,  which  is  only  natural  if  robbery  be  so,  and  such  degrada- 
tion of  the  status  of  the  skilled  worker  indicates  our  present 
economic  confusion.  If,  indeed,  the  skilled  workers  only  get 
more  wages  because  there  are  fewer  skilled  men,  in  the  event 
of  their  striking,  the  unskilled  men,  being  unable  to  replace 
them  at  once,  or  even  ever  replace  many  of  them,  could  not 
resist  their  demands,  however  extravagant.  On  the  other 
hand,  if  the  unskilled  workers  demand  in  general  higher  wages 

t:han  the  skilled,   the  latter,  who  can  laugh  at  a  strike,   are 
ible  to  replace  the  former.     Were  it  otherwise,   a  premium 
vould  be  placed  on  '  unskill,'   and  farewell  to  progress  and 
:ivilization. 
The  reader  will  be  reminded  here  of  the  effect  of  Bolshevism, 
109 


THE  REAL  WEALTH  OF  NATIONS 

and  in  truth  this  is  but  the  logical  consequence  of  a  belief  in 
the  law  of  supply  and  demand,  or  force,  and  denial  of  the  fact 
that  all  wealth  or  well-being  in  the  world  is  due  to  those  who 
use  their  skill  and  brains  for  its  production.  If  the  prole- 
tariat are  the  unskilled  workers  of  the  world,  they  are  not 
robbed  of  wealth,  for  as  they  do  not  produce  it  they  have  no 
right  to  it ;  they  can  justly  do  no  more  than  invoke  the  so- 
called  bourgeoisie  to  recognize  the  call  of  brotherhood  and 
voluntarily  share  their  wealth  with  the  less  endowed.  To 
kill  the  bourgeoisie,  or  attempt  to  take  their  wealth  by  force, 
rather  than  persuasion,  must  result  in  the  stoppage  of  wealth- 
production  and  misery  for  all. 

If  the  preceding  arguments  be  convincing,  the  relative 
wages  of  the  various  classes  of  workers  should  be  decided 
according  to  their  skill,  with,  of  course,  the  addition  of  at 
least  a  full  living  wage  for  all  dependents,  and  dirty  money 
where  necessary.  It  should  not  be  overlooked  that  some 
highly  skilled  jobs  are  also  very  unpleasant ;  for  instance,  a 
locomotive-driver  has  a  hard  life  and  is  also  skilled,  and  nearly 
always  a  fine  fellow,  and  in  many  occupations  there  are  men 
such  as  doctors  and  experimenters  who  risk  their  health  and 
lives  in  the  cause  of  progress,  even  if  they  themselves  imagine 
that  it  is  purely  for  money. 

Our  conclusion  holds  good,  whether  the  workers  are  pro- 
ducers or  handlers  of  wealth,  assuming  the  latter  are  essential ; 
if  they  are  not,  the  sooner  they  are  squeezed  out  by  under- 
payment the  better. 

When  differences  in  regard  to  wages  are  at  an  end,  it  does 
not  follow  that  all  will  not  want  to  improve  their  position  still 
further,  and  enjoy  more  luxury  and  more  leisure,  and  we  will 
now  show  that  this  can  be  effected. 

In  the  preceding  chapter  we  saw  the  effect  of  increased 
production  on  a  constant  wage,  and  that  the  greater  the 
amount,  or  the  better  the  quality,  produced  per  worker,  the 
greater  the  share  of  each,  and  the  higher  the  value  of  his 
wages,  and  while  the  benefit  derived  through  an  increase  in 
the  supply  of  necessaries,  or  labour-saving  devices,  is  directly 
measurable  in  terms  of  man's  daily  necessaries  of  life,  this 
no 


NATIONAL   VALUE   OF   INDUSTRIES 

is  not  the  case  with  a  new  luxury  value.  An  increase  in  the 
supply  of  the  same  luxuries,  with  less  labour,  obviously 
indicates  a  saving  in  the  consumption  of  necessaries,  but  the 
value  of  the  new  luxury  introduced  cannot  be  measured. 

When  considering  an  exchange  of  economic  wealth,  we 
saw  that  this  should  take  place  as.  nearly  as  possible  on  the 
basis  of  intrinsic  value,  in  which  case  the  wages  paid  would 
correspond  with  the  value  produced,  but  in  an  exchange  of 
luxury  value  there  is  only  demand  to  guide  us.  Thus  a 
number  of  men  producing  luxuries  might  be  in  receipt  of  high 
wages  through  obtaining  a  very  high  price,  or  exchange  value, 
for  their  product  owing  to  demand,  i.e.,  more  than  corre- 
sponded to  their  skill,  with  the  result  that  the  distribution  of 
wealth  would  be  affected,  and  they  would  be  gaining  at  the 
expense  of  their  fellows,  who  might  be  working  harder  and 
better,  and  yet  be  receiving  lower  wages. 

Nevertheless,  the  avoidance  of  this  is  not  always  possible, 
unless  the  State — that  is,  the  people — employ  themselves 
collectively,  and  all  receive  wages  in  strict  accordance  with 
their  skill,  the  price  of  luxuries  being  then  fixed  according  to 
the  value  of  the  labour  required  to  produce  them.  There  is 
obviously  no  equity  in  the  workers  on  luxuries  being  better 
off  than  those  on  necessaries  ;  this  could  be  obviated  to  a 
large  extent  if  the  principle  of  payment  according  to  skill 
became  generally  accepted,  and  prices  followed,  as  far  as 
possible,  the  cost  of  production. 

We  thus  arrive  naturally  at  the  question  of  the  national 
value  of  industries. 

THE  NATIONAL  VALUE  OF  INDUSTRIES. — We  know  that  the 
nation's  ability  to  produce  its  own  necessaries  and  luxuries 
depends  upon  the  provision,  first  by  Nature  and  then  by 
man,  of  capital  on  which  skilled  labour  may  work  to  produce 
a  higher  value  than  previously  existed,  and  remembering 
that  we  are  still  considering  a  self-contained  nation  it  is 
evident  that  the  people  can  enjoy  only  such  luxuries  as  they 
are  able  to  produce  themselves,  and  that  they  must  be  content 
therewith. 

It  is,  however,  undeniable  that  all  industries  or  occupa- 

III 


THE  REAL  WEALTH  OF  NATIONS 

tions  do  not  produce  the  same  value  per  hour's  work.  For 
instance,  men  designing  and  making  agricultural  machines 
which  save  labour,  and  therefore  the  consumption  of  neces- 
saries, produce  a  much  higher  intrinsic  value  per  worker  than 
those  who  work  these  machines  and  are  naturally  relatively 
less  skilled,  although  some  appear  to  think  that  machinery 
will  ultimately  replace  brains,  of  which,  as  we  have  seen,  it  is 
merely  the  expression.  If,  then,  we  desire  to  reduce  the 
average  weekly  hours  of  work  and  to  increase  leisufe,  or  to 
produce  more  luxuries,  the  more  brains  and  labour  we  attract 
to  the  manufacture  of  time-saving  devices  the  better. 

With  regard  to  luxury-producing  industries,  although  we 
can  gauge  the  relative  skill  of  the  workers  by  comparing 
their  qualifications  and  training,  we  cannot  say  definitely  that 
any  such  industry  is  better  than  another,  it  being  a  matter 
of  opinion  which  luxury  is  most  valuable,  and,  as  we  have 
just  seen,  a  high  exchange  value  for  a  certain  luxury,  due  to 
demand,  merely  benefits  that  set  of  workers  at  the  expense 
of  another.  Thus,  all  that  a  self-contained  nation  can  aspire 
to  is  to  produce  its  necessaries  and  all  the  luxuries  for  which 
it  has  the  raw  material  or  capital,  in  the  shortest  possible 
time,  after  which  the  only  luxury  it  can  enjoy  is  leisure. 
And  may  we  not  maintain  that  leisure  is  often  morally  pre- 
ferable to  commodities  ? 

On  the  other  hand,  when  we  consider  an  exchange  of 
goods  with  another  country,  we  shall  see  that  it  is  only  a 
question  of  the  exchange  value,  or  selling  price,  produced 
per  worker,  and  that  it  is  immaterial  whether  the  goods  are 
necessaries  or  luxuries.  For  instance,  a  designer  of  French 
millinery  becomes  wealthy  at  the  expense  of  his  fellow- 
countrymen  if  their  wives  and  daughters  pay  him  high  prices 
for  his  models,  whereas,  if  he  exports  his  hats,  which  represent 
a  high  value  per  worker,  he  actually  benefits  France,  so  long 
as  the  goods  imported  to  pay  for  them,  such  as  cheap  textiles, 
represent  in  their  production  more  hours  of  labour  than  the 
millinery. 

It  will  now  occur  to  the  reader  that  a  nation  could  be  quite 
wealthy  and  happy  with  no  exports  or  imports  whatever, 
112 


NATIONAL  VALUE  OF  INDUSTRIES 

that  it  can  actually  be  worse  off  by  export,  and  that  a  balance 
one  way  or  the  other  is  no  indication  of  prosperity.  For 
example,  what  if  we  designed  our  own  hats  ? 

We  referred  above  to  a  country's  capital  or  raw  material, 
and  we  assumed  that  the  application  of  labour  resulted  in  the 
production  of  an  excess  over  its  .consumption,  and  would 
continue  to  do  so  indefinitely,  yet  it  is  nevertheless  possible 
for  labour  to  destroy  wealth.  At  the  very  beginning  of  this 
book  we  ruled  out  of  economics  a  consideration  of  that  which 
Nature  provided  in  unlimited  quantities  available  for  all,  but 
she  is  not  so  generous  with  everything. 

Not  so  many  years  ago  man  obtained  his  necessary  fuel  from 
wood,  which,  with  Nature's  assistance,  he  can  replace  as  fast  as 
he  consumes  it,  but  when  coal,  with  its  far  higher  calorific  value 
per  given  volume  and  hour's  labour,  was  discovered,  the  demand 
for  it  was  immediate  and  soon  became  enormous,  particularly 
as  its  use  was  of  great  assistance  to  industrial  development. 

Although  the  age  of  coal-utilization  has  existed  for  a  com- 
paratively short  time,  we  already  foresee  that  the  deposits 
economically,  are  not  inexhaustible,  and  observe  that  the 
costs  of  mining  rise  rapidly,  whence  far-sighted  practical  men 
advocate  the  use  of  water  or  other  power,  wherever  possible, 
to  conserve  coal.  We  are  now  entering  upon  an  '  oil  age,'  and 
the  same  extravagance  is  noticeable,  as  also  is  the  prosperity 
of  countries  which  possess  neither  oil  nor  coal. 

Now  coal  belongs  either  to  the  country  where  it  is  found, 
or  alternatively  to  the  whole  world  (although  if  it  does  all 
natural  wealth  must  be  pooled),  yet  mining  does  not  really 
enrich  a  nation  any  more  than  a  man  is  richer  who  pawns 
his  shirt  to  purchase  a  meal.  Nevertheless,  if  a  nation  uses 
up  its  coal  in  order  to  produce  more  efficiently  and  trusts  to 
luck  for  future  fuel,  against  which  the  unborn  generations 
cannot  protest,  it  must  surely  be  for  the  benefit  of  the  whole 
nation,  and  not  of  a  section  only. 

Mining  is  a  filthy  job  :  no  one  would  prefer  to  be  a  miner, 
and  the  men  are  usually  dissatisfied,  yet  the  excavation  of 
coal  is  considered  in  countries  like  Britain  and  America  to  be 
one  of  the  most  important  industries,  although  it  is  not  a 

"3 


THE  REAL  WEALTH  OF  NATIONS 

productive  one  at  all.  The  miner,  in  fact,  does  not  make  the 
coal.  The  intrinsic  value  is  the  same  wherever  it  lies,  and 
if  each  miner  received  the  most  extravagant  wage,  this  value 
would  remain  unaltered,  although  the  rest  of  the  world  would 
be  bled.  Why  should  a  miner  be  a  privileged  person  ?  The 
coal  no  more  belongs  to  him  than  to  the  colliery  proprietor, 
from  whom  he  desires  to  take  it,  and  if  we  apply  our  previous 
wage-law  we  find  that  his  wages  should  be  that  of  a  hewer, 
plus  dirty  money  for  working  in  the  mines.  A  new  call  for 
miners  would  soon  decide  whether  they  were  under-  or  over- 
paid, and  their  number  could  be  enormously  reduced  if  the 
export  of  coal  for  private  benefit,  i.e.,  for  that  of  miners  and 
colliery  proprietors,  were  restricted. 

It  seems  astounding  that  the  nation's  irreplaceable  raw 
material,  or  capital,  should  be  disposed  of  by  individuals, 
regardless  of  whether  the  nation  obtains  value  in  return, 
especially  as  it  is  obvious  that  if  less  labour  were  used  in 
mining  coal,  more  would  be  available  for  productive  industries. 
That  this  truth  has  not  been  recognized  is  once  again  due  to 
that  fallacy,  the  law  of  supply  and  demand,  according  to 
which  the  coal  has  no  value  where  it  lies  ! 

It  is  surely  the  duty  of  the  Government  to  see  that  the  very 
highest  value  is  extracted  from  every  ton  of  coal — i.e.,  in 
addition  to  the  installation  of  every  device  for  its  economical 
consumption,  the  coal  should  be  utilized  for  the  production 
of  those  articles  which  yield  the  highest  value  per  ton.  For 
instance,  the  production  of  sewing-machines  requires  much 
less  coal  than  the  same  value  of  iron  bars.  We  shall  return 
to  this  question  in  the  chapters  on  International  Economics, 
but  we  have  indicated  here  the  true  position  of  the  coal,  or 
similar  industry,  in  the  nation's  economic  life — i.e.,  it  ranks 
as  one  of  the  very  worst,  being  of  itself  destructive  and  not 
productive  of  wealth. 

It  will  be  clear  from  the  foregoing — indeed,  it  must  have 
already  been  obvious  to  every  thinking  person — that  all  indus- 
tries are  not  of  equal  value  to  the  nation,  wherefore  their 
quality  is  of  vital  importance,  and  that  an  individual  may 
benefit  through  industry  at  the  nation's  expense. 


NATIONAL  VALUE  OF  INDUSTRIES 

Ignoring  for  the  moment  the  question  of  wages,  and  con- 
sidering only  the  quantity  of  commodities  produced  (and  if 
we  believe  therein,  their  intrinsic  value  also),  it  is  undeniable 
that  some  sets  of  men  produce  a  greater  quantity  or  value 
per  worker  than  others,  and  that  the  more  workers  engaged 
with  the  first,  the  more  wealth  must  be  available  for  distri- 
bution. Yet  this  obvious  truth  is  ignored  and  no  effort 
appears  to  be  made  to  direct  men  to  a  higher  productivity, 
apparently  because  it  is  thought  that  the  value  exists  through 
demand.  That  horrible  delusion,  the  law  of  supply  and 
demand,  is  again  revealed  as  responsible  for  our  industrial 
and  moral  degradation.  If  value  does  depend  upon  demand 
there  is  indeed  no  such  thing  as  skill  in  the  world,  and  a  man 
who  invents  a  more  nourishing  food,  a  labour-saving  device, 
deserves  nothing,  because  it  is  the  demand  of  stupid  people, 
whom  he  generally  has  to  convert,  which  creates  the  value  ! 
What  better  illustration  of  this  do  we  need  than  George 
Stephenson  and  the  '  coo  '  ? 

If,  however,  we  for  our  part  believe  that  all  man-wealth 
is  due  to  the  application  of  brains  and  skill,  and  that  they 
must  be  rewarded,  let  us  examine  a  nation's  industries,  accept- 
ing the  fact  that  a  skilled  worker  does  produce  a  greater 
value  per  hour  than  an  unskilled,  and  that  the  exchange  value 
or  price,  which  also  decides  the  wages  payable,  does,  as  it 
should,  follow  suit.  Expressed  otherwise,  we  may  then  say 
that,  apart  from  fluctuations  due  to  demand,  which  can  be 
prevented  to  a  large  extent,  skill  is  indicated  directly  by  the 
exchange  value  produced  per  worker.  We  will  endeavour  to 
illustrate  the  foregoing  diagrammatically. 

If  the  daily  necessaries  of  life  (N)  of  the  average  man  and 
his  dependents,  which  the  most  unskilled  worker  must  be  able 
to  produce,  be  represented  by  the  height  no  in  Fig.  I,  the 
increase  in  production  as  a  man's  skill  increases  will  be  shown 
by  the  line  nb,  and  the  net  wealth  he  produces  by  the  ordinates 
between  nm  and  nb.  Thus,  a  man  with  the  skill  s,  where 
the  ordinate  st  is  double  no,  produces  per  day  twice  his  daily 
necessaries  of  life,  or  wealth  just  equal  to  no,  and  we  will 
imagine  every  industry  as  containing  a  number  of  workmen 


THE  REAL  WEALTH  OF  NATIONS 

producing  an  average  amount  each,  according  to  the  average 
skill,  brains,  or  mind  utilized  in  that  industry. 

Let  us  consider  now  one  nation  only,  i.e.,  a  self-contained 
one,  of  which  every  man,  say  four  million  of  them,  is  a  producer, 
but  with  the  average  number  of  dependents,  and  let  them  be 
divided  equally  among  industries  increasing  in  skill  from  o 
upward. 

In  Fig.  I  the  line  nb  shows  how  a  man's  production  in- 
creases in  proportion  with  his  skill,  and  if  we  assume  an  iden- 
tical number  of  workers  of  each  degree  of  skill,  their  total 
production  will  be  calculated  by  multiplying  all  the  ordinates 


O  10  INDUSTRIES  1 
CUM  1OO,000  HKM 


to  nb  (e.g.,  st)  by  this  number  of  workers,  and  will  be  shown 
diagrammatically  by  the  line  NB  in  Fig.  2,  which  must  be 
parallel  to  line  nb,  although  drawn  to  a  different  scale. 

Let  us  next  suppose  that  the  four  million  producers  are 
divided  into  four  groups,  containing  one  million  men  respec- 
tively, and  let  these  be  equally  distributed  among  ten  indus- 
tries, each  of  a  different  degree  of  skill,  so  that  every  such 
industry  will  employ  one  hundred  thousand  workers.  If,  then, 
in  Fig.  2  the  shaded  area  ONdf  represents  the  N  of  ioo,cco 
men,  it  indicates  also  the  total  production  of  100,000  men 
in  the  most  unskilled  industry.  Similarly  the  area  ONP1 
represents  the  daily  necessaries  of  life  of  one  million  workers 
and  their  dependents,  and  the  area  ONT4  that  of  four  million 
workers. 

It  is  clear  that  100,000  men  of  a  certain  skill,  say  R,  produce 
116 


NATIONAL  VALUE  OF  INDUSTRIES 

more  than  their  necessaries  of  life,  as  shown  by  the  shaded 
area  above  the  line  NT,  and  that  the  area  ONB4  represents 
the  total  production  of  four  million  workers.  Subtracting 
from  this  the  area  ONT4,  representing  their  necessaries,  the 
triangle  NET  indicates  the  net  wealth  produced  by  four 
million  workers. 

Education,  as  we  know,  can  make  men  more  skilled,  and 
as  not  only  manual  skill,  but  the  brains  of  inventors  and 
organizers  produce  wealth  through  the  medium  of  unskilled 
labour,  we  next  arrive,  through  a  corresponding  increase  in 
the  efficiency  of  production,  at  the  increased  wealth-production 


Flora 


area  NCDT  shown  in  Fig.  3,  from  which  it  is  evident  that 
all  the  workers  have  every  inducement  to  improve  them- 
selves, because,  as  we  have  already  shown,  the  value  of  wages 
increases  according  to  the  value  produced. 

Naturally  those  workers  engaged  in  industries  toward  the 
right  expect  to  be  much  better  off  than  those  on  the  left, 
although,  as  we  showed  in  the  chapter  on  Wealth  Distribu- 
tion, the  former  must  share  with  the  latter  in  any  civilized 
community. 

We  assumed  above  that  all  men  were  producers,  but  we 
know  that  a  subdivision  of  labour  was  introduced  in  order 
to  increase  production  and  that  all  men  are  not  producers, 
so  that  if  out  of  our  four  million  men,  one  million  were  with- 
drawn to  handle  wealth,  the  remaining  three  million  must 
provide  necessaries  for  all,  and  an  equal  amount  of  wealth  to 
that  of  the  four,  or  there  would  actually  be  a  loss  through  a 

117 


THE  REAL  WEALTH  OF  NATIONS 

subdivision  of  labour.  This  is  illustrated  in  Fig.  4,  where 
the  area  ONS3  represents  the  necessaries  of  three  million 
workers,  and  NUYS  those  of  the  million  non-producers  which 
have  to  be  provided  by  the  producers. 

OEF3  represents  the  total  production  of  three  million  pro- 
ducers, each  of  whom  must  be  one-third  more  efficient  than 
before,  and  the  area  UEFY  their  net  wealth-production,  which 
must  not  be  less  than  NCDT  in  Fig.  3,  unless  there  is  to 
be  an  actual  loss  of  wealth  through  the  subdivision  of  labour. 
We  see  again  the  importance  of  keeping  the  number  of  wealth- 
handlers  as  low  as  possible. 


FIG  IV 


°"  r  -. 

x""" 

J 

-      -1 

R  "           'P 

R 

I 
1 

If  we  now  go  a  step  further  and  increase  the  efficiency  of 
some  of  the  most  unskilled  industries,  or,  alternatively,  rei 
place  some  of  their  products  by  others  of  higher  value  fot 
the  same  labour  expenditure,  we  should  transfer  workers 
from  the  left  to  the  right  in  our  diagram,  as  shown  in 

Fig.  5- 

Let  us  assume  that  of  our  first  million  workers,  half  of 
them  are  either  gradually  made  more  efficient  or  their  products 
are  superseded  by  better  ones,  and  that  the  better  half  of 
the  unskilled  men  have  been  promoted,  thanks  to  education, 
to,  say,  the  second  column,  and  the  same  number  from  here 
to  the  third  column,  and  so  on,  and  that  we  also  introduce 
new  and  still  higher  value-producing  industries  than  pre- 
viously existed.  We  will  also  suppose  that  our  remnant  of 
half  a  million  most  unskilled  workers  are  still  evenly  distri- 
buted over  the  first  ten  industries  (although  the  diagram 
would  only  be  slightly  altered  if  some  of  the  industries  were 
118 


NATIONAL  VALUE  OF  INDUSTRIES 

dropped  altogether),  but  that  our  new  half-million  workers, 
promoted  from  the  third  column,  are  only  spread  over  five 
industries,  with  100,000  men  in  each.  The  necessaries  of  the 
first  half -million  are  now  shown  by  the  area  onpl,  and 
their  wealth-production  by  nghp,  or  half  what  it  was  before, 
but  this  decrease  is  far  more  than  made  good  by  the  other 
half-million  men,  or  the  area  SKLT,  whose  necessaries  are 
measured  by  3ST4  and  exactly  equal  to  onpl. 

The    great    increase   in    total    wealth-production   through 
a  growth  of  skill  is  most  apparent,  the  net  gain  through  a 


FIOV 


transfer  of  half  a  million  workers  being  the  difference  between 
the  two  shaded  areas. 

In  the  foregoing  we  have  been  charitable,  and  assumed 
the  value  produced  by  each  worker  in  every  industry  to  be  not 
less  than  his  own  daily  necessaries  of  life,  yet  we  know  that  there 
are  industries  which  produce  no  wealth  at  all,  such  as  coal- 
mining (although  wealth  is  produced  in  other  industries  out 
of  the  coal),  and  further,  apart  from  handling  goods,  there  are 
so  many  occupations  which  produce  no  wealth,  or  so  many 
non-producers,  that  the  least  skilled  industries  cannot  bear 
their  fair  share  of  the  cost  of  supporting  them.  Thus,  in 
Fig.  6  the  area  OMZ3  shows  the  total  production  after 
charging  each  industry  with  its  share  of  the  non-producers' 
necessaries,  and  we  see  that  the  first  million  least  skilled 
workers  produce  no  net  wealth— in  fact,  they  destroy  it,  the 
area  MNP  representing  a  loss — and  that  if  they  are  indeed 

119 


THE  REAL  WEALTH  OF  NATIONS 

to  receive  their  full  necessaries,  it  can  only  be  from  the  other 
producers. 

Here  we  observe  the  origin  of  sweated  occupations,  either 
productive  or  non-productive,  in  which  the  workers  do  not 
receive  a  living  wage,  because  the  value  of  their  product  or 
labour  is  less  than  that  of  the  necessaries  of  themselves  and 
their  dependents.  Prevention  of  sweating  depends  therefore 
upon  the  various  classes  of  workers  recognizing  their  obligation 
and  interdependence. 

It  is  quite  true  that  sweating  appears  to  arise  from  the 
greed  of  individuals,  whence  the  failure  to  allocate  a  full 


FIG.V1 


living  wage  for  all  useful  and  necessary  work,  yet  this  again 
is  merely  the  application  to  the  most  unskilled  labour  of  that 
liberty  to  buy  in  the  cheapest  market  which  allows  the  strong 
to  prey  upon  the  weak.  For  the  weak  and  helpless  are,  and 
always  will  be,  the  great  unskilled,  so  long  as  civilization 
endures,  it  being  as  impossible  economically  to  sweat  skill 
and  brains  as  to  deny  that  all  wealth  is  due  to  their  efforts. 
Skill  is  not  compelled  to  plead  for  the  value  of  its  necessaries 
of  life,  because  it  produces  a  surplus  beyond  them,  and  when 
it  recognizes  its  own  power,  and  controls  the  distribution  of 
wealth,  it  will  see  that  its  human  servants  are  not  treated 
worse  than  dumb  animals. 

It  is  evident  that  a  wise  nation  will  keep  the  number  of  its 
unskilled  workers  as  low  as  possible,  which  is  in  its  power  so 
long  as  it  reserves  to  itself  complete  freedom  in  the  choice  of 
its  own  industries,  but,  as  we  shall  find  when  considering 
International  Economics,  a  nation  can  actually  surrender  its 

I2O 


NATIONAL  VALUE  OF  INDUSTRIES 

economic  liberty  and  be  thereby  compelled  to  do  the  unskilled 
work  for  another,  thus  lowering  its  average  wealth-production, 
or  standard  of  civilization. 

Further,  we  have  seen  that,  in  any  exchange,  that  party 
benefits  whose  cost  of  production  for  a  given  value  is  least, 


FIG.W 

SCALE  TWICE  THAT  or  Fi&V 


whence  a  nation  which  exchanges  the  products  of  its  unskilled 
labour  for  those  of  another's  more  skilled  labour  loses  at  every 
transaction,  although  owing  to  the  fact  that  exchange  value, 
or  price,  is  not  always  proportional  to  the  amount  of  skill,  the 
loss  may  be  modified,  although  also  accentuated,  to  a  con- 
siderable degree. 

For  the  sake  of  simplicity,  we  have  assumed  up  to  the 
present  in  this  investigation  an  identical  number  of  workers 
in  each  industry,  and  consequently  our  diagrams  are  bounded 
by  straight  lines,  but  the  principle  and  result  would  be  similar 
under  the  practical  conditions  of  a  varying  number  of  workers 
in  each  industry.  For  instance,  if  we  retain  our  assumption, 
in  Fig.  5,  of  four  groups  of  producers,  two  of  half  a  million 
and  two  of  one  million,  but  spread  their  number  unequally 

121 


THE  REAL  WEALTH  OF  NATIONS 

over  the  industries  in  their  respective  group,  the  wealth- 
production  might  appear,  drawn  to  twice  the  scale  of  Fig.  5, 
as  in  Fig.  7,  the  shaded  area  between  the  two  curves  repre- 
senting the  net  wealth-production. 

If  we  go  further,   and  consider  the  whole  three  million 
producers  spread  unevenly  over  all  the  industries,  for  instance 


FIG.MH 


2     J2£    2      1/2    2      2. 


yn<*«r  tf>«  diayrvn  dmotttt*  "vmbts  of 
tf    wytnf 


of  thwarts  (n  tn4o*trit» 


over  those  in  the  three  groups  shown  in  Fig.  6,  the  effect 
of  multiplying  the  ordinates  by  very  unequal  numbers  of 
workers  might  result  in  a  curve,  shown  in  Fig.  8,  drawn  to  a 
larger  scale,  where  a  considerably  lower  wealth-production  is 
indicated,  owing  to  the  smaller  number  of  workers  allocated  to 
the  more  skilled  industries.  In  this  figure  the  shaded  area  to 
the  left  of  the  vertical  line  IP  represents  a  loss  of  net  wealth. 

In  the  above  demonstration  of  the  value  of  a  nation's 
industries  we  have  taken  into  consideration  only  the  cost  of 
labour  —  i.e.,  the  consumption  of  all  its  necessaries  of  life  —  but 
it  will  immediately  occur  to  the  reader,  that  if  irreplace- 
able material  be  used  up,  both  the  cost  of  production  in  and 
122 


NATIONAL  VALUE  OF   INDUSTRIES 

the  value  to  the  community  of  an  industry  must  be  affected. 
And  so  they  are,  if  the  supply  of  material  be  not  unlimited. 
Material  provided  by  Nature  in  unlimited  quantities  may  be 
ignored,  except  as  regards  the  labour  required  to  make  it 
available,  but  where  the  quantity  is  limited  we  must  consider, 
in  addition  to  labour's  necessaries,  any  depletion  of  Nature's 
store. 

The  most  important  irreplaceable  raw  materials  provided 
by  Nature  in  limited  quantities  are  coal,  copper,  and  iron 
ore,  although  to-day  many  skilled  industries  are  dependent 
also  on  rarer  products,  such  as  tungsten,  platinum,  etc. 
Coal,  being  used  both  domestically  and  industrially,  looms 
largest  in  our  minds,  and  we  shall  therefore  select  it  for 
consideration. 

Were  coal  food,  its  intrinsic  value  would  be  measured  by 
its  nutriment  per  pound,  as  compared  with  that  of  potatoes  or 
flour,  but  as  the  value  of  coal  lies  primarily  in  the  heat  units 
or  calories  which  it  contains,  its  intrinsic  value  per  ton  is 
measured  by  the  number  of  days  (averaged  throughout  the 
year)  through  which  it  will  support  human  life.  Coal  is  also 
used  industrially,  producing  steam,  gas,  electricity  ;  it  thus 
saves  labour  and  therefore  the  consumption  of  necessaries, 
and  this  may  be  its  most  efficient  application.  We  also  obtain 
from  it  by-products  which  make  possible  the  supply  of  a 
variety  of  articles  having  both  intrinsic  and  luxury  value, 
e.g.,  medicines  and  dyes,  not  to  speak  of  explosives.  Obviously, 
therefore,  the  intrinsic  value  of  the  coal  destroyed  lies  in 
the  coal  itself  ;  it  is  not  dependent  on  whether  we  use  coal 
efficiently  or  not,  and  the  greater  the  intrinsic  value  we  learn 
to  extract  from  it,  the  more  should  we  prevent  its  wasteful 
utilization. 

If  the  foregoing  be  accepted,  it  is  evident  that  the  labour 
necessary  to  mine  coal,  and  to  distribute  it,  does  not  add  to 
its  intrinsic  value,  in  fact  detracts  from  the  total  intrinsic  value 
available,  because  workers  engaged  in  the  industry  consume 
all  their  other  necessaries  in  addition  to  their  average  share 
of  coal  (most  of  which  is  found  in  latitudes  where  heating  is 
essential  to  man's  existence).  Thus,  the  more  labour-hours 

I23 


THE  REAL  WEALTH  OF  NATIONS 

expended  in  handling  coal,  the  more  intrinsic  value  is  de- 
stroyed, and  were  coal  so  inaccessible  as  to  require  an  enormous 
expenditure  of  labour  per  ton  to  make  it  available,  it  might, 
as  far  as  heating  is  concerned,  be  preferable  to  burn  wood, 
which  can  be  replaced  as  fast  as  it  is  used  by  reafforestation. 

It  is  clear,  therefore,  that  to  the  cost  of  labour  in  producing 
a  given  value  in  any  industry  must  be  added  the  labour- 
cost  essential  to  obtain  its  coal,  or  other  irreplaceable  raw 
material,  and  also  the  intrinsic  value  of  the  material 
itself.  Consequently,  the  value  of  an  industry  to  the 
nation  is  reduced  in  proportion  as  it  involves  the  destruc- 
tion of  Nature's  irreplaceable  raw  materials.  For  instance, 
to  make  steel  bars  requires  little  labour  per  ton  of  coal,  iron 
ore,  etc.,  as  compared  with  locomotives,  of  which  both  the 
intrinsic  value  and  the  exchange  value  are  much  higher  per 
ton  of  raw  material  destroyed ;  therefore  the  production  of 
locomotives  or  industrial  machines,  which  employ  in  addition 
to  other  labour  a  relatively  large  amount  of  skill  and  brains, 
must  rank  higher  among  the  nation's  industries. 

One  reason  for  the  importance  of  agriculture,  or  any  other 
industry  in  which  Nature  and  man  together  replace  all  losses, 
is  now  manifest,  in  that  the  cost  of  production  is  limited  to 
the  necessaries  of  the  workers  engaged  therein.  It  will  also 
be  seen  that,  if  we  consider  first  an  industry  producing  com- 
modities having  intrinsic  value,  or  economic  wealth,  its  national 
value,  or  the  net  wealth-increment  yielded  per  worker,  is  cal- 
culated by  subtracting  from  the  total  intrinsic  value  pro- 
duced the  sum  of  the  intrinsic  value  of  the  irreplaceable  raw 
material  consumed  and  the  necessaries  of  the  workers  engaged 
in  the  said  industry,  and  then  dividing  the  result  by  their 
number. 

This  can  be  illustrated  as  follows.  If  first  we  ignore  the 
irreplaceable  raw  material,  the  value  to  the  workers  of  an 
industry  producing  intrinsic  value  is  the  total  sales  less  their 
living  wage.  This  difference  is,  of  course,  the  total  wealth- 
wage  of  the  workers,  and,  although  the  whole  of  it  does  not 
represent  a  national  wealth  increase,  their  advantage,  pro- 
viding the  exchange  value  correspond  with  the  intrinsic  value, 
I24 


NATIONAL  VALUE  OF   INDUSTRIES 

is  not  obtained  at  the  expense  of  the  rest  of  the  community, 
because  a  higher  intrinsic  value  is  actually  produced.  To 
find  the  net  increase  in  national  wealth,  we  must  subtract  from 
the  total  wealth-wage  the  intrinsic  value  of  the  irreplaceable 
raw  material  consumed,  which,  as  shown  in  Chapter  III,  can 
be  expressed  relatively  to  food,  and  therefore  equally  well  in 
money.  If  now  we  divide  the  resultant  amount  by  the  number 
of  workers  employed,  we  obtain  the  net  wealth-increment  pro- 
duced per  head,  or  the  net  value  of  an  industry  to  the  nation. 

As  a  practical  example,  let  us  imagine  a  number  of  men 
mining  coal  and  iron  ore,  and  utilizing  them  to  make  pig  iron. 
Their  cost  of  production  is  their  own  necessaries  of  life,  or 
their  total  living  wage,  and  their  profit  the  total  sales,  less 
this  living  wage.  On  the  other  hand,  the  nation's  cost  is 
found  by  adding  to  the  living  wage  of  the  workers  the  intrinsic 
value  expressed  in  money  of  the  coal  and  iron  ore  consumed, 
and,  assuming  again  that  the  selling  price  correspond  with 
the  intrinsic  value,  the  national  profit  is  the  total  sales  less 
this  cost. 

Of  course,  almost  every  industry  depends  upon  others 
for  its  raw  material,  whether  irreplaceable  or  not,  and  men 
making  dynamos  must  buy  iron  stampings,  iron  castings, 
steel  bars,  copper  wire,  paper,  cotton,  etc.,  made  by  other 
groups  of  workers. 

Ignoring  for  a  moment  the  value  inherent  in  the  irreplace- 
able raw  material  itself,  if  wages  were  paid  in  accordance  with 
skill,  or  value  produced,  the  purchase  price  of  raw  material 
would  indicate  its  intrinsic  value,  which  must  be  deducted 
in  order  to  calculate  the  national  value  of,  say,  the  dynamo 
industry.  Obviously,  if  the  prices  paid  by  the  dynamo- 
makers  for  their  raw  material  were  higher  than  its  intrinsic 
value,  their  industry  has  a  greater  value  than  would  appear. 
To  find  the  net  national  value  of  the  industry,  however, 
we  have  still  to  deduct  the  intrinsic  value  of  the  irreplace- 
able raw  material  it  consumes. 

But  the  reader  may  ask,  What  is  the  exact  intrinsic  value 
of  iron  ore,  copper,  etc.  ?  And  although  it  is  possible  to  cal- 
culate approximately  that  of  a  crowbar,  for  instance,  by  the 


THE  REAL  WEALTH  OF  NATIONS 

labour  it  saves,  this  does  not  altogether  indicate  the  import- 
ance of  irreplaceable  raw  material  provided  by  Nature  in 
limited  quantities,  because  it  is  obviously  affected  by  the 
quantity,  often  an  unknown  factor.  Nevertheless,  it  is  vital 
to  remember,  in  estimating  the  quality  of  a  nation's  industries, 
that  such  material  has  an  intrinsic  value,  which  may  not  be 
ignored. 

We  will  now  consider  industries  producing  luxuries.  Their 
national  value  must  be,  as  we  know,  a  matter  of  opinion,  as 
is  the  value  of  every  luxury,  although,  again,  those  industries 
which  employ  the  greatest  proportion  of  skilled  labour  should 
produce  the  relatively  highest  luxury  value,  for  it  would 
indeed  be  foolish  to  employ  skill  and  brains  in  producing 
articles  for  which  mankind  has  the  least  desire. 

It  is  now  manifest  also  that  in  the  case  of  luxury-producing 
industries  the  waste  of  Nature's  irreplaceable  raw  material  is 
only  justifiable  if  it  be  quite  certain  that  present  happiness  is 
not  purchased  at  the  cost  of  suffering  of  others  at  some  future 
time.  Although  we  talk  of  coal-conservation,  no  distinction 
is  made  between  the  use  of  national  property  for  personal 
gain  and  for  national  welfare  ;  nor  is  there  a  demand  for  a 
more  efficient  production  of  necessaries  benefiting  all,  rather 
than  for  the  provision  of  luxuries  for  the  enjoyment  of  the 
few.  Ignorance  is  bliss,  but  folly  must  be  paid  for  ! 

So  far  we  have  assumed  bodies  of  workers  banded  together 
in  co-operative  production,  or  syndicalized.  We  shall  find  that 
the  identical  principles  governing  such  co-operation  hold  good 
when  we  take  the  next  step,  and  introduce  that  bugbear  of 
our  industrial  world,  the  employer. 


126 


CHAPTER  XI 

THE  INTRODUCTION  OF  EMPLOYERS 

THE  EMPLOYER   AND  HIS   RELATION   TO  CAPITAL  AND 
LABOUR. — We  have  seen  how  a  further  subdivision  of 
labour  compelled  men  to  combine  in  order  to  obtain 
an  increased  efficiency  of  production,   and  also  to  pay  one 
another  wages  in  amounts  varying  with  their  skill,  and  there- 
fore with  the  value  of  the  industry  to  the  nation,  but  we  have 
not    considered    the    necessity    of    employers.     Nevertheless, 
although  it  is  evidently  possible  to  dispense  with  them,   at 
least  in  theory,  it  is  essential  to  analyse  carefully  their  function 
in  a  nation's  organism. 

We  know  that  capital  is  essential  in  order  to  produce  wealth, 
and  that  in  the  first  instance  it  is  provided  by  Nature,  yet  any 
efficient  production,  as  we  understand  it  to-day,  is  impossible 
without  man-capital,  for  Nature  provides  but  primitive 
implements.  It  is  true  that,  if  Nature  supplied  without 
assistance  all  their  necessaries  of  life  to  a  combination  of  men, 
they  could  gradually  produce  their  own  tools,  representing 
their  capital,  but  as  Nature  is  not  usually  so  kind,  and,  where 
she  is,  man  remains  uncivilized,  opportunity  for  their  production 
necessitates  man-capital. 

Nevertheless,  let  us  ignore  this  question  of  capital  for  a 
moment,  and  return  to  our  first  combination,  our  friends  the 
table-makers,  and  imagine  them  either  working  in  a  generous 
climate,  where  Nature  provides  their  necessaries,  or,  alterna- 
tively, each  man  working  part  of  the  day,  or  some  days,  to 
produce  his  own  necessaries  and  then  combining  with  his 
fellows  at  other  times  to  produce  tables.  How  came  these 
men  to  be  making  tables  together  ?  Surely  they  were  not 
all  suddenly  seized  with  the  same  idea  !  On  the  contrary, 

127 


THE  REAL  WEALTH  OF  NATIONS 

the  idea  of  combination  probably  originated  in  the  mind  of 
one  of  them  ;  he  may  or  may  not  have  been  the  best  workman, 
or  the  most  enterprising,  but  he  must  have  had  some  faculty 
for  leadership.  This  individual  would,  in  all  likelihood,  have 
decided  the  allocation  of  wages,  for  otherwise  the  men  would 
probably  not  have  agreed  to  combine,  or  having  combined 
they  would  have  spent  their  time  squabbling  and  would  have 
done  little  work. 

It  is  essential  for  any  combination  of  men  to  have  a  leader 
in  whom  they  trust ;  not  only  is  this  true  in  the  sphere  of 
Economics,  but  in  all  departments  of  human  activity,  in  games, 
and  in  any  manifestation  of  civilization  whatsoever.  Indeed, 
as  civilization  is  due  to  the  existence  of  superior  men,  its 
advance  will  be  the  more  rapid  the  more  power  is  given  to 
natural  leaders,  providing,  of  course,  that  they  are  worthy. 

The  leader  of  our  table-makers,  in  order  to  obtain  the 
confidence  of  his  team,  must  in  the  first  place  have  had  some 
outstanding  knowledge,  either  in  regard  to  making  tables  or  to 
selling  them,  just  as  the  captain  of  a  football  team  is  generally, 
or  should  be,  one  of  the  best  players,  or  the  one  with  the  greatest 
all-round  knowledge  of  the  game. 

In  other  words,  the  leader  must  be  skilled,  and  as  wealth 
results  from  labour  and  capital  only  when  harnessed  to  skill, 
the  first  function  of  this  superior  man  is  evidently  to  have 
some  pre-eminent  skill,  which  must  be  recognized  by  his 
fellow-workers,  if  satisfactory  results  are  to  be  obtained  from 
combination. 

Now  this  leader  might  have  proposed,  when  originating 
the  idea  of  making  tables,  that  for  his  work  of  direction  (and 
one  cannot  direct  and  do  skilled  manual  work  simultaneously) 
he  should  be  allowed  a  certain  number  of  extra  tokens  on  every 
completed  table,  and  as  he  proposed  to  show  the  other  men 
how  to  make  and  dispose  of  tables  efficiently,  it  is  highly 
probable  that,  having  confidence  in  his  ability  to  do  so,  they 
would  agree  to  his  suggestion,  in  the  interests  of  all.  The 
arrangement  therefore  allows  the  leader  to  make  a  certain 
profit  out  of  each  worker  with  whom  he  is  allied,  as  payment 
for  his  leadership,  or,  in  other  words,  this  man  employs  others 
128 


INTRODUCTION  OF  EMPLOYERS 

to  work  with  him.  We  do  not  say  '  for  him/  because  that  is 
a  current  delusion,  these  men  working  first  for  themselves, 
that  they  may  receive  the  share  agreed  upon,  i.e.,  their  wages, 
and  only  secondarily  to  provide  their  leader  with  his  share. 
The  first  function  of  the  employer,  therefore,  is  the  possession 
of  skill  or  knowledge  of  the  particular  industry. 

It  is  evident,  also,  that  the  larger  the  number  of  men  to 
combine  under  a  leader,  the  greater  the  latter's  total  share 
of  the  product  of  their  work  ;  in  fact,  he  might  amass  much 
wealth  while,  at  the  same  time,  taking  so  little  from  each 
worker  that  it  would  hardly  be  noticeable.  Thus  we  see  the 
fallacy  of  the  notion  that  the  yearly  income  of  the  employers, 
if  divided  among  their  workmen,  would  appreciably  ameliorate 
their  lot.  For  instance,  had  a  man  employing  10,000  work- 
people an  income  of  £100,000  per  year,  and  the  whole  of  it 
were  taken  away  from  him,  this  would  mean  but  four  shillings 
a  week  extra  to  each  workman  ! 

It  is  true,  of  course,  that  the  easiest  way  to  become  rich 
is  to  employ  other  men  to  work  for  you,  which  accounts  for 
the  general  desire  of  every  man  to  be  an  employer ;  yet  not 
merely  is  this  obviously  impossible,  and  only  the  best  men 
can  make  good  at  the  top,  but  the  prosperity  of  an  employer, 
as  indeed  of  any  man,  is  watched  with  envious  and  grudging 
eyes,  largely  because  no  distinction  is  made  between  the 
deservedly  and  undeservedly  successful. 

Now,  if  our  leader  of  table-makers  did  not  make  good,  his 
men  would  soon  turn  upon  him,  for  he  would  then  be  unable 
to  pay  them  wages,  and  men  have  no  use  for  an  employer 
who  fails,  however  little  he  may  be  to  blame.  The  second 
function  of  the  employer  is,  therefore,  to  accept  responsibility, 
for  if  he  obtain  too  little  for  his  tables,  or  alternatively  they 
are  too  costly  to  make,  his  own  return  and  his  co-workers' 
hourly  wage  would  be  reduced.  On  the  other  hand,  if  he  be 
successful,  and  his  efficiency  of  direction  advances,  not  merely 
will  he  get  a  share  on  an  increasing  number  of  tables  as  a 
consequence,  but  there  will  be  a  possibility  of  the  other  workers 
also  receiving  an  additional  share,  or  its  equivalent,  higher 
wages. 

129 


THE  REAL  WEALTH   OF  NATIONS 

We  thus  find  that  an  employer  must  be  skilled  in  some 
way,  and  be  also  the  bearer  of  responsibility,  and  in  practice 
the  latter  is  of  far  greater  importance  than  yet  indicated,  for 
we  assumed  above  that  either  Nature  provided  the  necessaries 
of  living,  or  the  men  each  daily  produced  their  own,  before 
getting  to  work  upon  their  tables.  Under  the  conditions  of 
modern  life,  however,  these  men  would  work  as  table-makers 
only,  and  the  questions  immediately  arise  :  what  are  they  to 
live  upon  before  they  have  completed  any  tables  and  have 
been  paid  for  them,  and  where  are  the  tools  with  which,  and 
buildings  in  which,  they  are  to  work  to  come  from  ?  Either 
every  man  must  have  a  reserve  of  necessaries,  his  own  tools, 
and  a  workshop,  or  the  leader  must  be  able  to  furnish  these 
for  all,  or,  what  is  equivalent,  he  must  possess  a  number  of 
tokens  wherewith  to  acquire  them.  Thus,  either  the  leader 
is  a  superior  capitalist,  or  each  of  the  men  must  have  capital. 

From  what  we  know  of  human  nature  and  its  inequality, 
it  is  unlikely  that  all  men  will  become  capitalists  under  any 
social  conditions,  for  to  do  so  necessitates  producing  more 
than  is  consumed,  or  making  more  than  is  spent,  whereas  it 
seems  to  be  ingrained  in  the  nature  of  the  majority  of  men  to 
spend  more  than  they  make.  The  latter  course  is  incom- 
parably easier  than  the  former.  Hence,  although  there  is 
in  theory  no  reason  why  all  men  should  not  be  in  a  position 
to  do  so,  in  practice  it  is  generally  one  man,  or  a  group  of  men 
combined,  who  finds  the  capital  to  start  an  enterprise,  and 
the  third  function  of  the  employer  appears,  therefore,  to  be 
the  supplying  of  man-capital  in  order  to  produce  man-wealth. 
We  must  not  forget,  however,  that  he  can  only  hope  to  produce 
wealth.  He  cannot  command  the  result,  and  must  risk  his 
capital  in  the  hope  of  increasing  it.  In  other  words,  the  leader 
must  have  the  courage  to  take  risks. 

As  it  is  generally  difficult  to  do  that  which  is  most  worth 
doing,  failure  is  often  the  first  reward  of  enterprise,  and  success 
only  follows  perseverance.  Thus,  our  leader  must  not  merely 
have  capital  sufficient  to  make  his  first  tables,  but  enough  to 
enable  him  to  hold  on  if  the  first  tables  are  not  a  success,  or 
recognition  of  their  value  follows  slowly. 

130 


INTRODUCTION  OF  EMPLOYERS 

We  assumed  above  that  the  leader  provided  the  capital 
himself,  and  that  those  who  were  going  to  work  with  him  did 
not  provide  it.  But  the  leader  might  himself  supply  no 
capital  whatever  ;  instead  of  doing  so  he  might  go  to  some 
friends  and  get  them  to  help  him  ;  he  would  then  merely 
direct  the  application  of  the  capital. 

Thus  the  leader  or  employer  must  perform  the  following 
functions  :  He  must  be  skilled,  he  must  bear  responsibility, 
he  must  have  control  of  capital,  and  he  must  have  the  courage 
to  risk  both  capital — if  it  be  his  or  not — and  also  his  labour. 

As  the  employer  may  or  may  not  perform  a  quadruple 
function,  he  may  or  may  not  deserve  a  fourfold  return. 
Those  who  supply  the  capital  will  want  a  return  thereon. 
Every  man  who  saves  instead  of  spending  will  expect  some 
return  if  he  lend  his  savings  for  any  purpose,  for  otherwise 
there  would  be  no  incentive  to  thrift,  that  source  of  the  increase 
in  man-capital  upon  which  a  greater  material  prosperity  and 
a  shorter  working  day  ultimately  depend.  Only  the  thrift- 
less or  the  idealist  are  of  a  contrary  opinion. 

The  return  demanded  by  the  capitalist  will  depend,  firstly 
on  the  risk  ;  secondly  on  his  greed  or  otherwise.  The  latter 
consideration  is  influenced  by  education  ;  for  example  a 
philanthropic  capitalist  with  an  unlimited  supply,  offering 
money  at  one  per  cent.,  would  most  certainly  drive  all  others 
out  of  business.  Thus  a  satisfactory  return  for  capital,  called 
interest  in  the  case  of  money,  and  rent  in  the  case  of  house 
property,  is  a  matter  of  opinion.  Every  man  should  ask 
himself  this  question :  If  I  had  saved  money,  how  much 
should  /  want  in  return  for  lending  it  ?  The  answer  obviously 
depends  upon  altruistic  education  alone,  and  it  is  curious 
that  while  the  poor  are  often  an  example  to  the  rich  in  their 
generosity  to  one  another  in  the  case  of  distress,  they  are 
sometimes  very  greedy  when  it  comes  to  lending  money. 

The  return  on  capital  must  not  be  confused  with  the  reward 
of  the  employer  as  a  leader,  in  which  capacity  he  is  justly 
entitled  to  a  share  independent  of  any  other  claim.  We  do 
not  profess  to  know  exactly  how  much  he  should  have  of  the 
product  of  every  man  whom  he  leads,  nor  can  the  men  say, 


THE  REAL  WEALTH  OF  NATIONS 

for  who  can  answer  this  simple  conundrum  :  If  a  group  of 
workers  are  producing  one  ton  of  goods  per  week,  and  a  man 
shows  them  how  to  double  their  output,  what  ought  to  be  his 
share  of  the  increased  production  ? 

The  employer  thus  appears  in  general  as  :  (i)  a  leader  of 
his  men ;  (ii)  the  controller  of  capital. 

Now  the  people  who  furnish  capital  (the  result  of  someone's 
thrift),  if  there  be  any  risk,  tell  the  leader,  or  employer,  of 
the  men  that  they  want  more  than  the  return  usual  for  an 
absolutely  safe  investment — in  fact,  they  demand  as  much  as 
they  can  get — and  seeing  the  capitalists  getting  a- bigger  return 
for  their  money,  the  workmen  become  discontented  and  want 
higher  wages,  whether  or  not  they  have  themselves  produced 
wealth,  or  are  trying  their  utmost  to  do  so.  On  the  other  hand, 
if  the  capitalists  are  getting  poor  returns,  the  workmen  do 
not  worry  about  them,  and  they  have  to  bear  any  loss.  The 
workmen  have  come  to  look  upon  the  capitalist  as  an  enemy, 
but  their  community  of  interest  is  obvious,  for  the  more  wealth 
produced  the  more  there  is  for  both  to  share. 

This  is  quite  clear  in  the  case  of  our  table-makers,  for  the 
more  tables  that  are  produced  for  a  given  amount  of  labour 
the  greater  the  leader's  share,  and  the  higher  the  hourly 
return,  or  wages,  of  the  workers  can  be,  and  if  the  community 
of  interest  between  capital  and  labour,  or  between  employers 
and  employed,  were  only  recognized,  it  would  not  be  very 
difficult  to  decide  upon  an  equitable  distribution.  For 
instance,  both  sides  are  entitled  to  security,  the  workers  for 
their  living  wage,  the  capitalists  for  a  standard  return  on  their 
money.  Thereafter,  as  the  production  of  wealth  results,  a 
share  should  be  given  to  the  workers  in  the  form  of  a  wealth- 
wage,  and  to  the  capitalists  in  the  form  of  increased  divi- 
dends. 

Although  it  is  obvious  that  the  more  labour  takes,  the  less 
there  is  for  capital,  and  vice  versa,  and  the  greater  share  the 
employer  receives  for  directing  the  better  for  him  and  the 
worse  for  the  workers,  yet  the  community  of  interest  of  all 
parties  is  undeniable,  and  the  poverty  of  many  cannot  be 
due  to  the  existence  of  the  employer-capitalist,  as  such,  for 
132 


INTRODUCTION  OF  EMPLOYERS 

both  capitalist  and  employer  are  necessary,  but  must  arise 
from  non-fulfilment  of  their  respective  obligations  to  labour. 

If  certain  principles  were  agreed  upon  for  the  sharing  of 
prosperity  among  all  parties,  this  constant  jealousy,  which  is 
as  childish  as  it  is  futile,  would  disappear.  Wealth  is  due  to 
capital  and  labour  when  harnessed  to  skill,  and  it  is  the  latter 
that  should  decide  the  apportionment  between  labour  and 
capital  in  accordance  with  fair  play  and  the  deserts  of  the 
respective  parties. 

That  an  employer  is  not,  in  principle,  the  enemy  of  his 
workmen  is  obvious  not  from  the  variety  of  opinions  on  the 
subject,  but  from  the  nature  of  their  relationship.  The 
employer  making  tables  has  to  promise  his  men  certain  wages, 
which  he  must  pay  irrespective  of  whether  he  sell  his  tables 
or  obtain  a  good  price  therefor.  If  he  be  unfortunate  and 
sell  his  tables  at  a  loss,  it  is  obvious  that  he  must  suffer,  while 
his  men  will  have  benefited  at  his  expense.  On  the  other 
hand,  if  the  employer  induce  his  men  to  work  for  very  low 
wages,  and  make  such  a  profit  that  he  could  have  paid  them 
higher  wages,  and  still  have  done  very  well,  the  position  is 
reversed.  Thus,  as  it  is  possible  for  either  party  to  benefit 
the  other,  it  is  clear  that  they  cannot  be  enemies  in  principle. 

In  Chapter  X  we  considered  the  national  value  of  industries, 
and  the  rate  of  wages  which  corresponded  thereto,  and  it  is 
evident  that  the  value  of  employers,  or  capitalists,  to  the 
workers  rises  with  the  value  or  average  skill  of  an  industry. 
Thus,  the  fewer  workmen  necessary  to  produce  a  given  profit, 
the  greater  will  be  the  amount  of  wealth-wage  shareable,  and 
this  is  exemplified  in  the  skilled  industries,  in  which  both  the 
employer  and  the  capitalist  ought  therefore  to  be  better  off, 
although  this  is,  at  present,  by  no  means  always  the  case. 

On  the  contrary,  unskilled  workers,  producing  but  little 
wealth,  often  obtain  high  wages  at  the  expense  of  the  rest  of 
the  community,  i.e.,  through  high  prices ;  and  although  an 
employer  who  controls  a  large  number  of  unskilled  workers 
may  amass  great  wealth,  this  divided  among  so  many  men 
would  not  materially  increase  their  wages. 

We  referred  on  p.  129  to  the  fact  that  an  employer 

133 


THE  REAL  WEALTH  OF  NATIONS 

might  keep  to  himself  so  small  a  share  of  the  product  of  each 
worker  that  the  latter  would  hardly  notice  it,  and  one  would 
naturally  infer  that  such  an  employer  was  the  best  friend  of 
his  workmen. 

It  must  not  be  forgotten,  however,  that  the  employer  of 
unskilled  labour  keeps  a  smaller  proportion  of  the  whole 
output  to  himself  only  because  the  net  amount  of  wealth 
produced  per  worker  is  so  low. 

The  employer  of  skilled  labour,  on  the  other  hand,  whose 
men  create  a  high  average  rate  of  wealth,  can  not  only  pay 
them  a  good  wealth-wage,  but  retain  a  larger  share  for  himself. 

The  truth  that  the  employer  whose  collaboration  with 
his  workers  produces  the  most  wealth  is  the  latter's  best 
friend  is  manifest  if  only  we  consider  the  division  of  the 
wealth  produced,  i.e.,  after  allowing  for  the  full  living  wage  of 
all  employees. 

We  must  remember  that  man-capital  or  accumulated 
wealth  is  not  really  money,  but  goods,  and  that  with  a  given 
amount  of  the  latter  it  is  most  beneficial  that  it  be  employed 
to  produce  the  greatest  quantity  of  further  commodities  with 
the  labour  available. 

These  commodities,  such  as  buildings,  machines,  tools,  etc., 
are  themselves  the  fruit  of  skill  and  brains,  so  that  the  smaller 
the  necessary  consumption  in  producing  further  commodities 
the  better.  On  the  other  hand,  although,  in  general,  the 
skilled  industries  require  more  capital  per  worker,  it  must 
not  be  forgotten  that  a  greater  total  net  wealth  results  there- 
from (i.e.,  after  allowing  for  depreciation,  or  loss  of  com- 
modities), in  which  all  parties  may  share  and  benefit.  If 
there  were  a  shortage  of  capital  commodities,  men  would  cer- 
tainly be  forced  into  those  industries  which  required  least, 
until  such  time  as  by  thrift  they  were  able  to  remedy  this.  A 
nation  which  allows  its  capital  to  diminish  while  increasing  its 
population  cannot  hope  to  become  wealthy,  and  condemns 
its  people  to  a  lower  standard  of  living. 

As  we  have  said,  other  things  being  equal,  the  more  skilled 
an  industry  the  greater  amount  of  capital  is  necessary  per 
worker,  for  apart  from  the  question  of  plant,  if  the  workmen 
134 


INTRODUCTION  OF  EMPLOYERS 

are  skilled  they  have  a  right  to  higher  wages,  to  cover  which 
more  capital  must  be  provided  to  finance  the  intervening 
period  before  their  products  are  sold.  The  capital  required 
to-day  in  many  unskilled  industries  also  is  large,  owing  to  the 
costly  machines  employed  therein,  yet  not  merely  is  the 
wealth  produced  per  worker  less;  but  these  machines  are 
generally  the  product  of  costly  experiments  in  skilled  indus- 
tries, and  it  is  to  these  that,  so  far  as  the  nation  is  concerned, 
the  wealth  obtained  from  the  unskilled  industries  must  really 
be  attributed.  For  instance,  it  is  better  to  make  machines 
than  soap,  and  although  a  new  machine  in  the  soap  industry 
might  enable  the  unskilled  workers  to  double  their  output, 
if  their  wages  were  doubled  it  would  be  unfair  to  other  un- 
skilled workers,  and  the  increased  production  is  due  to  the 
brains  in  the  skilled  industry  which  supplied  the  machine. 
From  every  point  of  view,  therefore,  skilled  industries  are 
best  for  the  workers  and  best  for  the  nation,  from  which  it 
follows  logically  that  the  capitalist  must  be  encouraged  to  put 
his  money  into  skilled  productive  industries,  and  that  just 
as  we  differentiate  between  skilled  and  unskilled  workers, 
we  must  distinguish  between  the  various  purposes  to  which 
capital  can  be  applied. 

Leaving  risk  out  of  the  question,  the  reward  of  capital, 
therefore,  should  depend  on  how  its  use  benefits  the  community, 
and,  to  attract  it  into  the  right  channels,  viz.,  skilled  pro- 
ductive industries,  a  higher  rate  of  interest  must  be  allowed. 

It  might  be  urged  that  when  once  capital  is  provided,  any 
increase  in  production  is  due  entirely  to  labour,  be  it  skilled 
or  unskilled,  but  as  capital  is  as  essential  as  labour  for  wealth- 
production,  it  is  also  entitled  to  an  increasing  share  of  the 
latter.  Any  industry  must,  in  the  first  place,  produce  a  value 
equal  to  the  living  wage  of  all  the  workers.  This  having  been 
effected,  the  production  of  wealth  follows,  and  capital  has  the 
first  claim  upon  it  for  a  standard  and  accepted  rate  of  interest, 
let  us  say  five  per  cent.  If  further  wealth  be  produced  (which 
would  be  the  case  in  all  but  the  worst  industries),  an  equal 
percentage  of  the  increase  should  be  given  to  capital  and 
labour.  For  example,  a  rate  of  ten  per  cent,  on  capital  would 

'35 


THE  REAL  WEALTH  OF  NATIONS 

then  yield  an  average  increase  in  wages,  or  wealth-wage,  equal 
to  the  living  wage,  the  total  amount  taken  by  capital  and 
labour  respectively  depending  upon  the  number  of  workers,  i.e., 
the  total  of  wages  would  share  in  proportion  with  the  total 
of  necessary  capital.  We  say  necessary  advisedly,  because 
the  watering  of  or  other  manipulation  of  capital  has  no 
more  effect  upon  the  production  of  wealth  than  gambling 
at  Monte  Carlo,  or  transactions  on  the  Stock  Exchange. 

According  to  our  suggestion  the  relative  total  reward  of 
capital  and  labour  would  be  dependent  upon  the  amount 
of  capital  employed  as  compared  with  the  total  number  of 
workmen.  On  the  other  hand,  were  the  total  profits  equally 
divided  between  capital  and  labour,  it  is  obvious  that  the 
smaller  the  amount  of  the  former  compared  with  the  number  of 
workmen  employed,  the  worse  off  the  latter  would  be  as  com- 
pared with  the  capitalists,  through  any  growth  in  prosperity, 
so  that,  as  indicated  above,  adjustment  must  be  made  on  the 
basis  of  a  percentage  increase. 

We  saw  in  Chapter  VI  that  the  non-producer  of  wealth 
has  no  right  to  any  share  of  it,  and  similarly  only  capital  used 
in  the  production  of  wealth  can  claim  to  participate  with 
labour  in  the  result.  Just  as  unskilled  labour,  however, 
whether  productive  or  unproductive,  must  receive  a  living 
wage,  capital  essential  for  the  handling  of  wealth  must  be 
allowed  a  minimum  return.  Further,  while  the  reward  of 
labour  should  depend  upon  its  skill,  the  first  claim  of  capital 
must  also  be  affected  to  some  extent  by  the  risk  in  an  invest- 
ment ;  hence  the  necessity  for  debentures  as  well  as  preference, 
deferred,  and  ordinary  shares,  etc. 

The  so-called  '  conscription  of  capital  *  presumably  means 
calling  it  up  for  realization  or  destruction,  yet  although  some 
capital  might  be  conscripted,  the  advocates  of  such  a  step 
have  never  shown  that  they  distinguish  productive  from 
unproductive  capital.  Indeed,  it  is  apparently  only  because 
they  think  that  such  a  measure  would  benefit  labour,  i.e.,  the 
majority,  and  harm  the  remainder  of  the  community  that  they 
propose  it. 

Although  we  trust  that  it  is  now  clear  that  the  calling  up 

136 


INTRODUCTION  OF  EMPLOYERS 

of  capital  used  in  the  production  of  national  wealth  would  be 
disastrous  for  all,  particularly  for  the  improvident  and  unfor- 
tunate, whether  found  in  the  ranks  of  labour  or  not,  owing  to 
the  consequent  reduction  in  available  commodities,  there  is 
undoubtedly  much  capital  that  can  be  conscripted  ;  in  fact, 
all  commodities  not  required  for  -production  or  for  the  sus- 
tenance of  the  community — in  short,  all  luxuries  and  a  mass 
of  unproductive  fixtures.  As  far  as  the  latter  are  concerned 
it  is  obvious  that  they  are  mostly  unrealizable,  and  as  for 
luxuries,  if  we  take  them  from  those  who  can  afford  them, 
to  whom  will  they  be  sold  ?  Obviously  if  the  despoiled  can 
afford  to  repurchase  them  without  using  their  remaining 
capital  it  must  be  out  of  income,  whence  a  higher  income  tax 
would  be  equally  effective.  In  any  case,  luxuries  cannot  be 
converted  by  a  self-contained  nation  into  necessaries  or  utilities, 
the  means  required  to  pay  the  cost  of  government. 

We  have  nothing  to  say  against  the  conscription  of  luxuries 
and  their  exchange  with  another  nation  for  necessaries,  except 
that  we  are  likely  to  be  seriously  disappointed,  because  if 
no  one  wants  luxuries  they  have  indeed  no  value.  Further, 
if  capital  be  the  reward  of  thrift,  notice  of  its  confiscation 
should  surely  be  given  in  order  that  we  can  become  a  nation 
of  spendthrifts  voluntarily,  and  thus  avoid  disturbance  and 
unpleasantness. 

Once  more  the  trouble  arises  from  thinking  in  terms  of 
money  instead  of  goods,  and  from  forgetting  that  the  con- 
scription of  money  will  force  it  into  circulation  (if  not,  it  may 
as  well  stay  where  it  is),  when,  if  the  total  quantity  of  com- 
modities remain  exactly  the  same,  its  value  will  be  depreciated 
and  everyone  will  suffer  thereby.  Alternatively,  the  con- 
scription of  commodities  for  consumption  will  reduce  their 
quantity,  and,  other  things  remaining  unaltered,  therefore 
depreciate  also  the  value  of  money  in  the  pockets  of  the  poor. 

It  is  now  evident  that  the  whole  cost  of  government,  as 
well  as  a  greater  share  from  the  rich,  can  be  exacted  solely 
through  income  tax,  without  any  depreciation  whatsoever  in 
the  value  of  money,  for  true  income  corresponds  with  an 
increase  in  the  amount  of  wealth  available,  while  living  on 

137 


THE  REAL  WEALTH  OF  NATIONS 

capital  reduces  it.  Nevertheless,  as  shown  in  Chapter  IX, 
the  limit  of  taxation  is  prescribed  solely  by  our  altruistic 
education,  because  otherwise  the  unwilling  tax-payers  pass 
on  their  burdens  by  increasing  prices,  thus  depreciating  the 
value  of  money  in  the  pockets  of  all.  Further,  the  rate  of 
income  tax  payable  should  not  depend  solely  on  the  amount 
of  income,  but  also  upon  its  source,  for  whereas  the  profits 
of  those  who  produce  wealth  correspond  to  an  increase  in 
the  amount  of  commodities  available,  and  in  the  purchasing 
power  of  money,  those  of  non-producers  represent  only  a 
transfer  of  wealth. 

The  organism  for  wealth-production  can  best  be  likened 
to  that  of  a  man,  the  arms  and  legs  representing  capital  and 
labour  respectively,  and  while  a  man  whose  members  do  not 
act  in  unison,  or  are  not  controlled  by  his  brain,  receives  pity, 
presumably  sane  men  to-day  actually  advocate  war  between 
the  various  limbs  of  the  industrial  body,  and  repudiate 
allegiance  to  its  brain,  ignoring  the  patent  fact  that  the  well- 
being  of  every  man,  woman,  and  child  would  be  adversely 
affected  thereby. 

The  fact  that  it  is  hardly  possible  to  open  a  newspaper  in 
which  there  are  not  reports  of  strikes  in  some  parts  of  the 
world  is  an  indication  of  the  gravity  of  the  disease  from  which 
civilization  is  suffering.  Quarrels  resulting  in  war  between 
nations  are  far  more  natural,  and  sometimes  more  justifiable, 
than  strikes,  which  are  fratricidal  and  due  primarily  to  false 
economic  ideas.  Were  we  all  taught  to  realize  that  nothing 
mattered  but  production,  and  that  everyone  benefited  from 
an  increase  and  suffered  through  a  decrease  of  it,  the  world 
to-day  would  be  a  different  place. 

Most  people  imagine  that  if  there  were  no  employers  there 
would  be  no  strikes,  and  although  the  origin  of  strikes  is  some- 
times puerile,  it  is  true  that  in  general  they  owe  their  origin 
to  a  belief  on  the  part  of  the  workmen  that  they  are  under- 
paid or  unfairly  treated  by  their  employers.  In  view  of  the 
current  delusions  as  to  their  real  relationship  this  is  only  natural. 

But  there  is  another  cause  of  strikes,  which  would  persist 
even  if  employers  were  abolished,  in  the  unfair  remuneration 

138 


INTRODUCTION  OF  EMPLOYERS 

of  one  set  of  workers  compared  with  another,  with  its  resulting 
discontent,  and  it  is  just  as  important  to  understand  the 
economic  relationship  of  the  various  sections  of  workers  as 
of  employers  and  employed.  We  showed  in  Chapter  X  how 
unfair  was  the  application  of  the  law  of  supply  and  demand, 
which  is  merely  camouflaged  human  greed,  or  robbery,  and 
it  is  now  evident  that,  assuming  the  relationship  of  employers 
and  employed  to  be  satisfactorily  settled,  if  the  law  of  value 
governed  wages,  i.e.,  equal  pay  for  equal  services,  every  man 
a  living  wage  for  each  dependent,  and  a  wealth-wage  according 
to  his  skill,  the  cause  of  strikes  would  be  practically  eliminated. 

The  spectacle  of  town-dwellers  getting  higher  wages  than 
workers  in  the  country  and  insisting  on  buying  agricultural 
produce  cheaply,  while  the  goods  they  make  and  supply  to 
the  countrymen  may  be  dear,  is  an  example  of  industrial 
strife  not  arising  from  any  question  of  employers. 

Again,  the  strikes  for  higher  wages  or  less  hours  that  are 
now  of  such  constant  occurrence  are  not  really  aimed  at 
employers,  but  at  the  State,  or  by  one  class  at  another,  and 
they  will  continue  to  scourge  the  community  so  long  as  the 
law  of  supply  and  demand,  or  force,  be  recognized,  for  what 
is  a  strike  but  an  attempt  to  obtain  by  force  more  wages,  or 
goods,  regardless  of  the  question  of  value  ?  Indeed,  strikes 
would  not  be  tolerated  in  any  really  civilized  State,  for  they  are 
a  form  of  civil  war  of  the  worst  description,  i.e.,  merely  for  gain. 

Although  a  strike  may  benefit  one  portion  of  a  nation,  and 
selfishness,  therefore,  be  its  cause,  it  is  evident  that  it  can 
only  harm  the  whole.  That  the  public  and  the  Government 
in  every  country  look  on  more  or  less  passively  can  only  be 
due  to  failure  to  recognize  the  fact  that  everything  depends 
upon  the  producers,  that  when  any  section  of  men  strikes, 
whatever  their  occupation,  they  are  supported  by  those  who 
continue  to  produce,  and  that  the  strike-pay  given  them 
depreciates  the  value  of  money.  Thus,  although  the  strikers 
appear  to  suffer,  so  long  as  strike-pay  provides  their  necessaries 
they  are  just  the  ones  who  do  not  suffer,  for  they  obtain  a 
holiday  at  the  expense  of  those  who  are  working. 

If  all  men  were  paid  according  to  their  value,  no  class  of 

139 


THE  REAL  WEALTH  OF  NATIONS 

workers  would  allow  another  to  obtain  an  advantage,  and 
most  certainly  the  producers  of  wealth  would  not  allow  the 
handlers  of  wealth  to  do  so.  If  there  is  to  be  any  advantage  it 
must  come  to  the  producers,  for,  as  we  have  shown,  every  man 
should  want  to  be  a  producer,  and  an  increase  in  the  number 
of  middlemen,  or  non-producers,  is  detrimental  to  the  whole 
community.  Obviously,  the  best  way  to  encourage  men  to 
be  producers  is  in  all  cases  to  pay  producers  rather  higher 
wages  than  the  non-producers  for  the  same  quantity  or  quality 
of  work.  The  ever-increasing  number  of  middlemen  is  one  of 
the  causes  why  improvement  in  the  condition  of  the  workers 
is  slow,  in  spite  of  our  ever  greater  facilities  for  production, 
and  it  is  thus  a  cause  of  strikes. 

The  workers  have  been  led  to  lump  all  employers,  whether 
of  skilled  or  unskilled  labour,  together  as  their  enemies,  not 
realizing  that,  in  spite  of  his  imperfections,  a  rich  producer 
may  have  benefited  his  men  and  the  whole  nation,  whereas 
the  wealthy  middlemen — and  their  number  is  legion — benefit 
both  themselves  and  their  employees — should  the  latter,  indeed, 
receive  a  share  of  their  prosperity — only  at  the  expense  of  the 
producers.  Thus,  although  the  true  interests  of  employers 
and  employed  are  identical,  it  does  not  follow  that  those  of 
many  employers  and  many  sets  of  workers  are  not  diametri- 
cally opposed  to  the  interests  of  the  rest,  e.g.,  those  of  pro- 
ducers to  those  of  non-producers,  both  masters  and  men. 

It  is  now  clear  that  the  employer  is  not  a  distinct  species 
in  the  economic  world,  but  a  sort  of  super-skilled  worker  whose 
reward  must  follow  the  law  of  value,  and  whose  interest  must 
be  identified  with  that  of  labour  rather  than  that  of  capital. 
Also  that,  although  the  question  of  distribution  between  all 
classes,  capitalist,  employer,  and  worker,  will  always  be  a 
matter  of  opinion — aye,  even  of  strife,  as  between  two  brothers 
or  the  members  of  one  family — it  is  essential  in  a  healthy  State 
that  the  common  good  and  not  that  of  a  class  be  the  deciding 
factor  in  settlements,  and  that  the  energies  of  the  nation  be 
so  directed  that  the  greatest  possible  wealth-production,  by 
which  alone  the  average  conditions  of  living  of  the  whole  com- 
munity can  be  improved,  may  result. 
140 


CHAPTER   XII 

CO-OPERATION  7ERSUS  COMPETITION 

IN  our  first  chapter  we  referred  to  competition,  and  the 
erroneous  idea,  notwithstanding  that  there  are  many  who 
still  cherish  it,  that  it  is  the  cause  of  progress.  We 
showed  that  civilization  is  due  to  the  superior  man,  that  its 
growth  is  dependent  upon  intercourse,  and  also  that  the  only 
complete  liberty  compatible  with  civilization  is  that  of  the 
mind.  We  shall  now  find  that  the  only  competition  beneficial 
to  humanity  is  also  that  of  the  mind,  or  co-operation. 

The  haziness  of  economic  thought  is  revealed  in  the  fact 
that  the  workers  throughout  the  world  are  told,  and  actually 
believe,  that  the  most  intense  competition  among  sellers  must 
be  beneficial  to  them,  whereas  they  must  not  compete  with 
one  another.  In  other  words,  that  competition  in  the  sale  of 
goods  is  beneficial,  whereas  in  the  sale  of  labour  it  is  not  bene- 
ficial. What  are  goods,  however,  but  the  product  of  labour, 
and  how  is  it  possible  to  have  competition  in  the  price  of  goods 
and  no  competition  in  the  price  of  labour  ?  It  is  absolutely 
impossible,  but  unfortunately  the  workman  has  been  led  to 
think  that  his  interests  are  divergent  from  those  of  the  em- 
ployer and  that  the  latter  decides  his  wages,  wherefore  the 
counsel  that  he  should  compel  the  employer  both  to  sell  goods 
to  him  cheaply  and  to  pay  him  a  high  price  for  his  own  labour 
is  attractive.  Of  course,  it  is  the  other  employer's  goods 
which  he  wants  to  buy  cheaply,  but  as  the  other  employer's 
cost  is  also  the  wage  he  pays,  even  if  he  would  be  generous  to 
his  workpeople  the  greed  of  other  workers  prevents  him. 

We  know  that  the  employer's  profit,  enormous  though  it 
may  seem  to  the  struggling  workman,  would  in  most  cases, 
particularly  in  unskilled  industries,  if  distributed  among  the 


C\ 
^ 


THE  REAL  WEALTH  OF  NATIONS 

workers  with  their  present  rate  of  production,  effect  but 
little  improvement  in  their  conditions  of  living.  If  for  a 
moment  we  ignore  the  employer's  profit,  which,  in  general, 
is  small  compared  to  the  total  of  wages  paid,  it  would  follow 
that  a  reduction  in  the  selling  price  of  an  article  must  necessitate 
a  reduction  in  the  wages  of  its  producers,  i.e.,  competition  in 

selling  price  of  goods  must  bring  in  its  train  lower  wages. 
The  same  is  true  if  we  consider  the  employer's  profit  per  worker 
to  be  constant. 

That  the  workers  have  not  realized  that  they  are  fighting 
one  another  is,  again,  due  to  the  fact  that  they  are  always 
thinking  about  their  employer.  If  progress  be  indeed  due 
to  competition,  the  workers  who  do  not  favour  it  must  be 
deteriorating  (which,  in  truth,  is  the  case  if  they  be  not 
doing  their  best  —  and  the  policy  of  '  ca  canny  '  is  actually 
a  recognized  feature  of  present  industrial  life)  and  only  the 
employers  who  *  enjoy  '  competition  can  be  improving  ! 

Let  us  investigate  the  real  cause  of  improvement.  If  one 
man,  owing  to  his  superiority,  does  a  job  better  than  another, 
the  latter  may  recognize  that  he  too  should  be  able  to  improve. 
If  so,  it  is  the  result  of  human  intercourse.  The  latter,  however, 
may  be  unwilling,  and  in  some  cases,  therefore,  it  may  be 
necessary  for  the  better  man  to  compel  the  other  to  improve. 
Thus,  on  the  one  hand  we  have  liberty  and  willingness  to 
improve,  and  on  the  other  improvement  by  compulsion  ;  the 
primary  cause  in  both  is  the  superiority  of  the  first  man.  A 
man  '  on  his  own  '  can  do  no  better  than  he  knows,  but  in 
company  he  can  learn  from  others,  and  if  he  have  any  good  in 
him,  and  be  better  than  an  animal,  he  can  learn  without  the 
application  of  force.  Where  he  will  not  do  so,  the  sooner 
force  is  applied  to  him  the  better  for  himself  and  the  community 
among  whom  he  dwells. 

Intercourse  only  is  essential  in  order  to  ensure  progress, 
and  intercourse  must  introduce  either  competition,  whereby, 
if  two  men  do  the  same  work,  each  tries  to  '  best  '  the  other 
to  his  hurt,  or  co-operation,  whereby  each  tries  to  help  the 
other  to  their  mutual  advantage.  In  either  case,  neither  can 
rise  above  the  total  higher  inequalities  of  both,  but  whereas 
I42 


CO-OPERATION  v.   COMPETITION 

the  first  method  is  an  appeal  to  man's  lower  and  animal 
instincts,  the  second  appeals  to  his  better  nature.  The  first 
is  barbarism,  and  it  cannot  achieve  the  same  result  as  the 
second,  civilization,  for  the  men  who  fight  waste  their  energies 
in  fighting.  This  is  true  of  all  competition,  which,  far  from 
being  beneficial  to  the  human  race,  is  the  cause  of  untold 
waste  and  poverty. 

We  know  that  the  wealth  and  well-being  of  the  world 
depend  upon  production,  i.e.,  the  surplus  of  production  over 
its  cost,  or  consumption,  and  it  is  evident  that  competition 
increases  the  cost  of  production,  and  that  every  unnecessary 
competitor  in  the  handling  of  wealth  increases  the  total  number 
of  people  who  have  to  be  fed,  clothed,  and  housed  out  of  that 
industry,  or  by  other  producers. 

Competition  is  merely  another  example  of  the  animal  law  . 
of  the  survival  of  the  fittest,  not  that  of  the  best,  but  very 
often  the  worst,  and  it  is  an  appeal  to  man's  lowest  instincts  ; 
in  fact,  the  desire  underlying  competition  is  not  benefit  to 
one's  fellow-men.  The  purpose  of  all  competition  is  increased 
profit  for  an  individual,  whereas  only  increased  wealth-pro- 
duction which  is  obtainable  through  co-operation  can  benefit 
mankind. 

For  instance,  if  two  manufacturers  are  producing  an 
identical  article,  for  which  there  is  a  certain  demand,  and  they 
compete  with  one  another,  they  must  devote  a  vast  amount 
of  labour,  energy,  and  time  of  their  workers  to  the  endeavour 
to  '  best '  one  another.  But  from  the  point  of  view  of  the 
community  every  advantage  obtained  by  one  is  offset  by 
the  loss  to  the  other.  Anything  gained  through  competition 
would  have  been  equally  obtainable  by  co-operation  and  without 
the  waste  of  energy.  But,  say  many,  co-operation  would  mean 
monopoly.  What  of  that  ?  If,  indeed,  all  producers  of  one 
article  were  banded  together  to  help  one  another,  doubtless 
they  might  at  first  make  huge  profits  by  increasing  their  effici- 
ency, but,  even  so,  the  rest  of  the  community  would  be  no  worse 
off  than  before,  while  according  to  our  New  Civilization  every 
one  of  the  workers  in  this  industry  should  profit  pari  passu. 

Of  course,  if  the  monopolists  advanced  their  prices,  they 

143 


THE  REAL  WEALTH  OF  NATIONS 

would  benefit  themselves,  and  their  workers,  at  the  expense  of 
the  rest  of  the  community,  but  we  are  contemplating  wages, 
and  therefore  costs,  based  upon  the  value  produced  and  the 
retention  of  big  profits  being  dependent  upon  wealth-pro- 
duction. Further,  as  co-operation  should  effect  a  reduction 
in  the  number  of  non-producers,  and  increase  the  total  power 
of  production,  an  advance  in  the  purchasing  power  of  money 
would  follow,  from  which  the  whole  of  the  community  would 
benefit. 

Of  course,   if  one  set  of  producers,    working  in  co-opera- 
tion, were  amassing  wealth,  and  another  set,  equally  deserving, 
i.e.,  of  equal  average  skill,  although   co-operating,   were  doing 
badly,  this  would  not  prove  that   co-operation,  or  monopoly, 
is    ineffective,  but  merely  that    there    was    an    unfairness  in 
distribution  which  should  be  rectified.     Moreover,  competition 
does  not  prevent  an  unequal  reward — in  fact,  it  almost  ensures 
that  the  least  deserving  obtain  it,  or  that  the  weak  and  unskilled 
are  crushed.     We  talk  of  honesty  being  the  best  policy,  but 
(the  smart  man  in  business   is  not  the  most  honest,  and  the 
^greater   the    competition    the    more    dishonest   a   nation   will 
/  generally  be.     If  poverty  be  the  mother  of  crime,  competition 
is  the  mother  of  dishonesty. 

Realization  of  the  advantages  of  a  subdivision  of  labour 
is  a  recognition  of  the  necessity  for  co-operation  as  against 
competition,  for  our  table-makers  combined  in  the  belief  that 
they  would  increase  their  total  output  as  compared  with  the 
results  of  their  isolated  and  competitive  efforts.  If  then  it  be 
desirable  for  one  set  of  men  to  co-operate  to  produce  one  article, 
it  must  be  right  for  all  workers  to  combine  to  produce  all 
articles,  provided  that  the  total  real  cost  of  production  is 
thereby  reduced.  The  question  is  of  such  vital  interest  that 
the  failure  of  the  producer  to  realize  his  overwhelming  im- 
portance and  power  and  to  insist  upon  co-operative  production 
demands  explanation. 

We  have  already  appreciated  the  consequences  which 
follow  from  thinking  of  money  as  wealth,  and  from  working  to 
obtain  wages,  instead  of  to  produce  wealth,  or  to  do  work 
useful  to  the  community,  but  the  failure  to  recognize  the 
144 


CO-OPERATION  v.  COMPETITION 

employer  as  a  co-worker,  and  to  appreciate  that  his  interests 
are  identical  with  those  of  his  employees,  is  equally  disastrous. 

If  all  men  were  producers  (i.e.,  both  producers  and  con- 
sumers, for  the  former  cannot  avoid  being  also  the  latter), 
competition  between  two  groups  of  them,  or  a  lower  price  for 
their  product  for  the  benefit  of  other  groups  of  producers 
(acting  as  consumers)  who  might  be  less  deserving,  would 
entail  a  smaller  share  for  each  individual  of  the  former,  and  a 
transfer  of  wealth,  without  increase  in  its  total. 

On  the  other  hand,  had  these  two  groups  of  producers 
co-operated  to  reduce  their  costs  of  production  while  main- 
taining their  price  unaltered,  the  other  producers  (acting  as 
consumers)  would  be  no  worse  off  than  before,  while  our  first 
producers  would  be  better  off,  because  a  given  quantity  of 
their  product  is  now  made  available  with  less  labour. 

Here  we  have  an  increase  in  total  wealth,  and  obviously 
the  first  producers  could  afford  to  share  with  the  others  some 
of  their  advantage,  and  under  the  law  of  value  might  be  com- 
pelled to  do  so.  The  essential  difference  between  obtaining  a 
cheaper  price  through  a  diminution  of  profit  and  doing  so 
through  a  reduction  in  the  cost  of  production  is  now  manifest. 

Competition,  which  results  in  a  lower  price  for  the  pro- 
ducers, must  mean  longer  hours  of  work  for  them  for  the  same 
result,  and  if  we  forbid  this,  harder  work,  or  a  higher  efficiency, 
is  necessitated,  but  the  latter  being  only  obtainable  from  one 
of  our  superior  men,  it  is  the  result  of  his  superiority  and  not  of 
competition.  Force,  or  competition,  is  no  more  the  mother 
of  invention  than  is  necessity,  for  were  it  otherwise  man  would 
never  have  progressed  beyond  producing  his  daily  necessaries 
of  life. 

It  is  true  that  competition  would  keep  men  from  somnolence, 
but  so  would  war,  and  the  one  is  no  more  essential  to  progress 
than  the  other.  Fosterers  of  insane  competition  are  no  truer 
philosophers  than  were  the  German  pedagogues  who  declared 
that  the  sword  could  advance  civilization.  Indeed,  competi- 
tion is  the  more  insidious  enemy  because  it  comes  disguised 
under  the  cloak  of  philanthropy. 

The  man  who  buys,  and  everyone  does,  is  told  that  he  will 

'45 


THE  REAL  WEALTH  OF  NATIONS 

be  better  off  because  he  can  buy  more  cheaply,  but  the 
foolish  man  does  not  see  that  he  can  only  do  so  at  the 
expense  of  his  fellows  (evidently  men  who  permit  it  must  be 
fools),  and  that  they  in  their  turn  will  also  endeavour  to  buy 
more  cheaply,  and  will  do  so  at  his  expense — that  is,  will  pay 
less  for  his  product  or  the  result  of  his  labour — so  that  in  due 
course  he  is  compelled  to  work  harder,  or  to  accept  lower  wages. 
Indeed,  if  a  nation  desires  to  go  to  sleep,  who  should  say  it  nay, 
or  why  should  not  a  people  be  permitted  to  lead  its  own  life, 
and  prefer  leisure  to  commodities,  a  spiritual  to  a  material 
wealth  ? 

Supposing  it  were  possible  to  abolish  all  internal  competi- 
tion, all  the  people  would  nevertheless  not  all  go  to  sleep, 
for  we  must  not  forget  our  superior  man,  and  his  inherent 
desire  to  express  himself.  For  instance,  if  all  the  barbers  in  a 
town  combined,  and  agreed  to  charge  the  same  scale  of  prices, 
they  would  not  all  become  careless  in  their  habits,  for  being 
human  and  not  merely  animal,  one  of  them  might  dislike  dirt 
and  cleanse  his  shop  (or  failing  such  action  of  his  own  volition, 
the  complaint  of  one  of  his  customers  would  incite  him  to  do  it), 
when  the  other  barbers  would  be  compelled  to  follow  his  lead, 
or  example.  Nevertheless,  the  first  clean  shop  was  not  due  to 
competition,  but  to  the  superiority  of  some  man,  imitation  by 
others  being  the  consequence.  Under  an  autocracy  a  superior 
man  would  force  his  fellows  to  follow  him,  whereas  under  a 
true  democracy  they  would  do  so  voluntarily — that  is,  would 
co-operate  with  him — and  there  is  nothing  obtainable  by 
competition  which  is  not  better  realizable  by  co-operation. 

We  have  recognized  that  competition  does  not  effect 
wealth-increment,  and  that  the  producers  do  not  gain  by  it, 
but  it  does  benefit  another  section  of  the  community,  viz., 
the  wealth-handlers.  The  greater  the  competition  the  more 
employment  for  middlemen  and  the  larger  profit  they  can 
squeeze  out  of  the  producers,  while,  as  we  have  seen,  every 
unnecessary  middleman  means  a  smaller  total  wealth-pro- 
duction, a  diminished  share  for  every  individual,  and  a  decrease 
in  the  purchasing  power  of  money. 

The  middleman,  the  buffer  between  producer  and  consumer, 
146 


CO-OPERATION  v.  COMPETITION 

pretends  that  he  is  the  friend  of  both,  while  in  effect  he  is  his 
own  friend  alone.  The  world  is  divided  into  two  classes,  the 
producers  and  the  non-producers  of  wealth  (for  all  being 
consumers,  these  cannot  be  termed  a  class),  and  the  interests 
of  the  two  can  never  be  identical. 

Although  we  have  shown  that  co-operation  among  producers 
results  in  an  increased  availability  of  wealth,  not  necessarily 
equitably  shared,  co-operation  among  middlemen  might 
result  merely  in  a  greater  profit  to  them  without  any  real 
wealth-increase  whatever,  for  only  if  such  co-operation  lead 
to  a  reduction  in  the  number  of  wealth-handlers  (up  to  the 
present  an  unlikely  supposition)  is  there  any  gain  to  the 
community.  The  smarter  the  wealth-handlers,  and  the  larger 
their  profit,  the  smaller  will  be  the  profit  of  the  producers, 
and  whereas  a  higher  efficiency  of  any  producer,  because  he 
cannot  keep  the  whole  of  the  increased  output  to  himself, 
increases  the  value  of  money,  through  which  all  benefit,  a 
higher  efficiency  on  the  part  of  an  individual  middleman 
may  mean  only  a  larger  profit  for  himself  individually,  unless 
labour  be  actually  displaced  and  put  to  production.  The 
difference  is  explained  by  the  fact  that  a  greater  production 
by  one  individual,  if  it  be  wanted,  does  not  mean  a  less  pro- 
duction by  another,  for,  as  we  shall  see,  there  is  no  such  thing 
as  over-production,  while  a  greater  efficiency  on  the  part  of 
one  middleman  will  be  off-set  by  a  lower  efficiency  on  that  of 
another,  unless  there  be  an  increase  in  the  total  production. 
Thus,  while,  in  order  to  encourage  efficiency,  the  middleman 
must  be  allowed  a  profit,  this  being  obtained  entirely  from  the 
unconscious  producer  should  be  limited  and  advanced  only  as 
the  amount  of  wealth  handled  per  worker  increases.  Doubt- 
less under  these  conditions  competition  would  be  likely  to  lose 
its  attractiveness  for  the  middleman,  who  would  then  realize 
that  efficiency  and  a  reduction  in  his  number  would  benefit 
both  himself  and  the  whole  community.  There  is,  however, 
nothing  wrong  in  the  desire  for  profit  (without  the  producer's 
profit  there  would  be  no  wealth-increase,  nor  any  civilization, 
of  which  it  is  the  outward  and  visible  sign),  and  it  is  only 
competition  for  profit  which  is  degrading  to  humanity. 

H7 


THE  REAL  WEALTH  OF  NATIONS 

We  have  seen  that  one  of  the  functions  of  the  employer 
is  to  bear  the  losses,  so  that  co-operation  by  ensuring  profits 
will  diminish  his  importance,  although,  at  the  same  time,  it 
should  improve  the  feeling  between  him  and  his  workpeople. 
But  co-operation  has  another  effect  of  far  greater  moment. 

Competition  which  results  in  an  advantage  for  one  party 
must  harm  another,  whereas,  had  we  co-operation,  profits 
would  be  assured  in  almost  every  industry,  and  most  occupa- 
tions, with  the  consequence  that  profit-sharing  would  become 
a  practicable  proposition. 

Now  profit-sharing  is  not  merely  right  in  principle,  but 
possible  in  practice  in  every  occupation,  so  long  as  profits  are 
assured,  and  the  search  for  profit  made  without  detriment  to 
others  is  not  a  sign  of  greed  but  of  wealth-production,  and 
a  desire  for  material  progress.  Except  in  isolated  cases, 
profit-sharing  has  been  tried  practically  and  with  success  only 
under  monopolies,  where  profit  is  certain,  and,  if  production 
were,  as  it  should  be,  a  monopoly,  i.e.,  of  the  nation,  and  the 
whole  nation  did  not  go  to  sleep,  which,  as  we  have  seen,  it 
will  never  do,  there  is  certain  to  be  a  total  profit.  If,  never- 
theless, there  were  any  industries  which  failed  for  some  good 
reason  to  make  a  profit,  or  any  deserving  but  unfortunate 
occupations  in  the  same  state,  in  view  of  the  principles  which 
decide  the  equitable  distribution  of  wealth  among  the  com- 
munity, there  should  be  no  difficulty  in  satisfying  a  claim 
for  assistance,  even  if  some  of  the  profits  from  one  industry 
or  occupation  had  to  be  used  to  support  another. 

Profit-sharing  has  made  little  progress  hitherto  because 
it  has  not  been  recognized  that  it  necessitates  co-operation, 
and  not  merely  of  one  class,  but  of  all,  for  competition  by  any 
class  with  another  class  means  war,  which  prevents  complete 
co-operation  and  profit-sharing.  Many  well-meaning  re- 
formers have  advocated  and  attempted  profit-sharing  schemes, 
but  have  failed  to  discern  that  the  cause  of  their  failure  lies 
in  that  much-vaunted  competition  which,  while  supposedly 
benefiting  the  workers  through  keeping  prices  down,  actually 
increases  costs  (i.e.,  real  cost,  or  labour-hours),  reduces  the 
amount  of  divisible  wealth,  and  prevents  that  certainty  of 
148 


CO-OPERATION^.   COMPETITION 

profit  upon  which  profit-sharing  primarily  depends.  Universal 
profit-sharing  is  natural  and  inevitable,  but  realizable  only 
by  acceptance  of  co-operation  among  all  for  the  production  of 
wealth. 

We  referred  in  Chapter  XI  to  the  cause  of  strikes,  but 
when  we  are  educated  to  accept  remuneration  in  accordance 
with  the  law  of  value,  instead  of  that  of  supply  and  demand, 
equity  between  the  various  classes  of  workers  will  be  estab- 
lished, and  this,  combined  with  universal  profit-sharing  among 
wealth-producers,  and  control  of  profits  among  middlemen, 
will  effectually  prevent  those  outrages  against  civilization. 
On  the  other  hand,  until  these  principles  are  recognized, 
industrial  peace  and  progress  are  impossible. 

It  might  appear  that  the  unlimited  co-operation  we 
advocate,  both  in  the  production  and  handling  of  wealth,  is 
equivalent  to  nationalization,  yet  even  the  most  convinced 
supporters  of  this  policy  could  not  maintain  that  as  high  an 
efficiency  was  obtainable  from  a  State  as  from  a  privately 
controlled  enterprise.  On  the  other  hand,  we  have  shown 
that  co-operation  will  by  no  means  lead  to  stagnation,  and, 
if  everyone  is  already  doing  his  or  her  best  to  increase  the 
production  of  wealth,  and  to  avoid  waste  of  labour,  neither 
the  nation  nor  its  Government  can  do  any  better. 

This  panacea  for  our  social  ills  is  therefore  not  destined 
to  lead  to  a  greater  efficiency  in  the  production  of  wealth ; 
indeed  it  is  only  the  profits  of  one  industry,  or  of  all  industries, 
that  these  pseudo-socialists  really  wish  to  nationalize,  or  divide 
among  the  whole  population,  regardless  of  individual  effort. 
Consequently,  nationalization  is  the  very  antithesis  of  our 
scheme  of  co-operation,  in  which,  while  an  increase  in  divisible 
wealth  is  assured,  everyone  will  be  rewarded  according  to  his 
deserts. 

That  in  saying  this  we  do  the  advocates  of  nationalization 
no  injustice  is  shown  by  their  own  actions,  for,  seeking  as 
they  do  the  support  of  the  proletariat,  they  dangle  before  the 
eyes  of  the  latter  a  share  of  those  coveted  riches  which  we 
have  nevertheless  shown  conclusively  they  do  not  produce. 

For  instance,  if  we  nationalized  one  industry,  the  workers 

149 


THE  REAL  WEALTH  OF  NATIONS 

in  that  industry  might  be  the  most  deserving,  while  the  rest 
of  the  population  were  undeserving,  whence  it  is  manifest 
that  the  whole  delusion  of  nationalization  arises  from  failure 
of  the  economists  and  socialists  to  measure  wealth,  with  their 
consequent  inability  to  recognize  the  source  of  its  production 
in  brains  and  skill,  or  to  devise  a  distribution  of  wealth  in 
accordance  with  value  produced,  or  services  rendered. 

On  the  other  hand,  did  value  really  depend  upon  demand, 
it  would  be  impossible  to  say  who  produced  wealth,  or  deserved 
it,  and  nationalization  of  profits  would  be  a  sound  policy. 
Thus,  were  all  men  equal,  and  all  perfect,  all  wealth  should 
undoubtedly  be  equally  divided,  and  nationalization,  or 
everyone  working  for  everybody  else,  would  be  a  natural 
corollary,  but  as  this  assumes  two  impossibilities,  the  subject 
is  only  an  idle  speculation,  or  of  interest  to  those  who  wish  to 
mislead  the  gullible  proletariat,  or  to  batten  on  the  follies  of 
humanity. 

Desire  for  profit  at  the  expense  of  others  is  as  natural  to 
man  as  many  other  of  his  failings.  Desire  of  superior  men  to 
create  wealth  is  also  natural,  and  the  real  source  of  wealth- 
production  resides  in  their  brains  and  skill.  Consequently, 
their  claim  to  a  first  share  of  the  wealth  they  produce,  or  to  a 
profit,  is  undeniable ;  indeed,  only  perfect  men  (and  perfection 
in  men  is  apparently  not  realizable  on  earth)  could  be  expected 
to  put  forth  their  best  efforts  if  the  whole  result  thereof  was 
to  be  shared  with  others,  whom  they  considered  less  deserving 
than,  or  to  have  no  claim  upon,  themselves. 

Those  who  discern  in  the  desire  for  profit-making  the  cause 
of  a  bad  distribution  and  consequent  discontent  must  be 
blind  to  the  essential  distinction  between  the  rights  of  pro- 
ducers and  handlers  of  wealth,  and  to  the  fact  that  the  abolition 
of  all  individual  profits  would  certainly  result  in  there  being 
none  to  share.  Thus  only  by  an  advance  in  our  economic  and 
altruistic  education  can  a  greater  production  combined  with 
a  more  widespread  distribution  of  well-being  be  ensured. 

The  nationalization  of  railways  and  coal-mines  is,  however, 
another  matter,  for  neither  are  wealth-producing  industries, 
and  both  serve  almost  everyone,  so  that  there  will  be  no  in- 

150 


CO-OPERATION  v.  COMPETITION 

justice  in  any  profits  in  their  work  being  taken  up  by  the  State 
for  the  benefit  of  all.  As  we  shall  see,  however,  these  profits 
will  depend  on  personal  qualities  in  management  which  only 
private  enterprise  can  secure. 

Nevertheless,  as  far  as  the  railways  are  concerned,  if  transit 
is  to  be  cheap,  much  profit  will  not  be  tolerated,  or  the  largest 
users  would  again  be  unfairly  taxed,  so  that  the  division  of  the 
profits  of  the  railways  is  not  of  so  much  importance  after  all. 
Further,  we  must  not  forget  that  practically  all  railways  were 
built  by  private  enterprise,  for  it  was  the  courage  of  inventors 
and  capitalists  which  we  all  have  to  thank  for  progress,  whence 
the  State  has  absolutely  no  right  to  confiscate  the  property  of 
others,  from  which  it  has  itself  derived  enormous  benefit. 

That  the  object  of  the  private  promoters  of  railways  is  to 
make  a  profit  does  not  affect  the  question  in  the  least,  for  the 
privately  owned  railways  must  perform  a  public  service  if 
the  money  invested  in  them  is  not  to  be  lost,  whereas  some 
State-designed  railways  have  been  projected  regardless  of  the 
disposition  of  the  population  and  questions  of  practical  utility. 

With  regard  to  coal,  or  similar  material,  this  not  being  the 
product  of  man,  the  profits  from  its  recovery  should  certainly 
be  nationalized,  for  coal  belongs  to  the  nation,  and  neither  to 
the  miners  nor  the  present  colliery-owners.  Yet  again,  as 
individuals  have  been  allowed  to  pay  for  and  acquire  interest 
in  the  mines,  thanks  to  the  delusion  of  the  economists  that 
"  coal  has  no  value  where  it  lies,"  it  is  impossible  to  deny  them 
the  justice  of  full  compensation. 

Nationalization,  however,  does  not  necessarily  mean 
another  Government  department,  or  working  by  the  State, 
for  once  more,  only  when  man  is  perfect  will  the  same  efficiency 
and  honesty  be  found  in  Government  service  as  in  private 
enterprise.  Thus,  an  efficient  nationalization  can  only  be 
secured  by  handing  over  the  working  to  private  and  com- 
petent parties,  and  rewarding  them  and  their  workmen  on 
the  basis  of  efficiency — e.g.,  in  the  case  of  mines,  on  the 
number  of  tons  delivered  per  man  employed. 


151 


CHAPTER   XIII 

THE    QUALITY    OF    A    NATION'S    INDUSTRIES    DECIDES 
THE  LIMIT  OF  ITS  ECONOMIC  WELL-BEING 

WE  have  seen  in  the  preceding  chapter  how  by  co- 
operation the  cost  of  production  can  be  decreased, 
how  by  limitation  of  the  number  of  non-producers 
waste  may  be  avoided,  and  how  at  the  same  time  more  labour 
may  be  set  free  for  production,  so  that  the  way  in  which  a 
nation's  wealth  may  attain  its  maximum  is  clearly  indicated. 

We  also  saw  in  Chapter  X  how,  bearing  in  mind  the  cost 
of  production,  the  surplus  value  produced,  or  the  resulting 
wealth,  depended  upon  the  average  skill  of  the  community; 
that  is  to  say,  the  greater  the  number  of  workers  engaged  in 
the  more  skilled  industries,  the  greater  the  average  wealth- 
production  and  prosperity.  We  know,  also,  that  this  is  a  real 
prosperity  and  not  merely  a  material  one,  for  the  nation's 
wealth-production  is  in  inverse  proportion  to  the  average 
number  of  working  hours  required  to  produce  its  daily  neces- 
saries of  life  ;  the  higher  the  average  skill  used  in  the  pro- 
duction of  these,  the  shorter  will  be  the  working  hours. 

Thus,  if  happiness  be  the  highest  wealth,  it  is  evident  that 
a  nation  which,  after  obtaining  its  necessaries,  has  the  most 
time  in  which  to  educate  itself,  to  produce  luxuries,  or  to  enjoy 
them,  is  the  wealthiest,  yet,  since  the  meaning  of  wealth  is 
well-being,  it  is  a  matter  of  opinion  whether  a  nation  of  Spartan 
philosophers,  who  produced  their  necessaries  in  a  very  short 
time,  and  had  nothing  beyond  save  leisure,  should  be  con- 
sidered in  a  higher  state  of  civilization  than  one  which  devoted 
its  spare  time  to  the  production  of  material  wealth,  leaving 
less  time  for  contemplation,  or  even  enjoyment  of  the  wealth 
it  had  produced.  As,  however,  it  is  undeniable  that  the 

152 


LIMIT   OF    ECONOMIC  WELL-BEING 

possession  of  riches  is  no  guarantee  of  happiness,  it  may  be 
claimed  that  the  spiritual,  moral,  and  mental  development  of 
man  is  more  important  than  his  material  prosperity,  and  that 
it  is  better  to  aim  at  more  leisure,  which  affords  opportunity 
for  such  improvement,  rather  than  at  merely  a  greater  pro- 
duction of  material  luxuries. 

Although  it  is  natural  to  man  to  crave  luxuries,  history 
teaches  us  (in  this  case,  we  think,  correctly)  that  an  inordinate 
desire  for  material  wealth  lowers  a  nation's  fibre  and  has 
frequently  led  to  its  downfall.  We  do  not  gather  from  this 
that  nations  should  not  attempt  to  improve  their  conditions 
of  life,  particularly  the  average  conditions  of  the  less  fortunate, 
but  that  education  should  teach  people  to  develop  their 
intellectual  and  moral  side.  If  those  in  power  exhibit  a  lust 
for  luxuries,  one  cannot  blame  the  people  for  doing  likewise, 
and  again  the  superior  man  must  set  the  example,  and,  if 
necessary,  compel  his  weaker  fellows  to  follow  him,  for  just 
as  bad  money  drives  out  good  money,  being  easier  to  come  by, 
man  must  if  necessary  be  dragged  out  of  low  surroundings 
to  which  he  may  have  become  accustomed.  It  is,  indeed, 
incontrovertible  that  the  things  which  most  make  life  worth 
living  cannot  be  bought  because  they  are  not  even  material. 
One  cannot  buy  love,  happiness,  affection,  or  the  pleasure 
of  human  companionship,  and  enjoyment  of  the  beauties  of 
Nature  can  often  be  obtained  free,  or  at  small  cost.  As 
R.  L.  Stevenson  wrote  :  "  If  we  were  charged  so  much  a  head  fof 
sunsets,  or  if  God  sent  round  a  drum  before  the  hawthorns  came 
into  flower,  what  a  work  should  wenot  make  about  theirbeauty!" 
Every  man  should  ask  himself  what  he  wants  in  order  to  be 
happiy,  and  further  what  he  would  do  with  it  if  he  had  it. 

How  necessary  it  is  to  remember  that  wealth  does  not 
mean  merely  the  possession  of  material  commodities  is  shown 
by  the  fact  that  man  builds  himself  towns,  shutting  out,  as  far 
as  possible,  the  endless  beauty  of  Nature,  and  gets  so  used  to 
his  unpleasant  surroundings  that  he  tends  to  lose  all  apprecia- 
tion of  what  Nature  provides  for  him  free  of  charge,  with  the 
result  that  thousands  of  men  find  their  principal  enjoyment  in 
drinking  in  public-houses,  which  by  no  stretch  of  the  imagination 

153 


THE  REAL  WEALTH  OF  NATIONS 

can  be  termed  beautiful.  Moreover,  do  those  who  still  enjoy  a 
day  in  the  country,  a  pleasure  generally  due  to  the  desire  to 
gratify  the  children,  understand  that  their  pleasure  is  not 
material,  and  that  it  is  the  fault  of  man  himself  that  he  cannot 
more  often  enjoy  it  ? 

Further,  man's  striving  after  material  luxury  is  not  in- 
stigated by  appreciation  of  it  so  much  as  by  covetousness. 
We  want  what  other  men  have,  because  they  have  it ;  having 
attained  it,  we  are  again  dissatisfied.  The  workman  eating 
his  bread  and  cheese,  and  drinking  his  beer,  envies  the  rich 
man  enjoying  oysters  and  Chablis,  but  if  the  former  food  be 
good  there  is  no  question  which  man  has  most  enjoyment,  or 
derives  the  most  benefit  and  the  least  regret  from  his  meal. 

We  have  shown  that  the  nation's  total  working  hours  can 
be  reduced,  and  its  hours  of  leisure  increased,  but  this  might 
actually  lead  to  degradation  unless  the  latter  were  spent  in 
surroundings  which  appeal  to  man's  higher  intellectual  and 
moral  capacity.  Thus  a  nation's  wealth  or  poverty,  be  it 
material  or  intellectual,  its  education  and  civilization,  depend 
upon  the  quality  of  its  industries,  whereby  the  value  of  its 
production  in  a  given  time  is  decided. 

Lest,  however,  we  appear  to  underrate  the  importance 
of  material  wealth,  and  to  advise  the  working  classes  to  be 
satisfied  with  their  present  lot,  we  will  add  that  it  is  impossible 
for  a  nation  to  produce  too  much  wealth  and  leisure.  It  is 
true  that  we  read  of  an  *  over-production  '  which  results  in 
unemployment  and  the  impoverishment  of  the  whole  nation, 
but  this  is  due  to  a  temporary  or  permanent  excess  of  a  certain 
commodity.  No  one  has  yet  heard  of  a  nation  which  has 
too  much  of  everything,  whence  such  over-production  and 
consequent  unemployment  must  arise  simply  from  wrong 
production,  it  being  obvious  that  if  there  be  no  alteration  in 
the  distribution  of  wealth,  an  increase  in  production  must 
benefit  every  individual. 

A  nation's  annual  requirements  in  necessaries  is  a  known 
quantity,  so  that  their  production  is  not  a  gigantic  gamble, 
wherein  man  labours  to  produce  on  the  off-chance  of  someone 
wanting  his  output,  and  although  these  commodities  are 

'•54 


LIMIT   OF   ECONOMIC    WELL-BEING 

mostly  perishable,  improvements  in  storage  should  be  such 
that,  without  having  to  allow  much  margin,  there  will  always 
be  enough  and  to  spare  even  after  bad  harvests.  Yet  under- 
production of  necessaries  is  a  crime,  and  if  storage  facilities  did 
not  exist  over-production  would  be  mere  foolishness. 

Once  again,  the  responsibility  for  our  omissions  and  poverty 
lies  on  those  who  invented  the  law  of  supply  and  demand, 
which  deluded  the  workers  into  thinking  that  by  reducing 
their  output  its  value  would  be  increased,  and  the  same  wages 
would  be  payable  without  depreciation  in  the  value  of  money. 

Economically,  the  quality  of  the  agricultural  industry,  by 
far  the  most  important  of  those  producing  necessaries,  must  be 
measured  in  the  same  way  as  that  of  others,  viz.,  by  the  value 
produced  per  worker  employed  therein,  yet,  as  an  open-air 
country  life,  given  decent  housing,  results  in  a  far  healthier 
race  of  men  than  indoor  work,  especially  if  carried  out  under 
unpleasant  if  not  actually  unhealthy  conditions,  or  any  seden- 
tary occupation,  it  is  evident  that  the  more  people  the  agri- 
cultural industry  can  absorb  the  better. 

Although  agriculture  is  regarded  as  a  relatively  unskilled 
occupation,  this  is  a  mistake,  for  the  agricultural  labourer 
does  not  do  the  same  job,  day  after  day,  all  the  year  round, 
but  has  quite  a  variety  of  work  to  perform,  and  must  also 
understand  what  he  is  about  and  keep  his  eyes  open.  Compare 
this  with  the  mass  of  unskilled  workers  engaged  in  many 
trades,  working  without  any  interest,  often  turning  a  handle 
or  just  moving  goods  about,  and  the  frequently  observed 
natural  acumen  of  the  agricultural  labourer  confirms  his 
superiority  even  if  many  are  misled  by  his  slow-thinking  mind, 
the  result  of  a  lack  of  social  intercourse. 

Further,  the  value  produced  per  worker  in  agriculture, 
in  England,  at  any  rate,  can  be  enormously  increased  by 
making  co-operation  compulsory,  when  the  very  best  machines, 
delivery  vans,  etc.,  could  be  supplied  to  a  group  of  farmers, 
both  for  growing  and  marketing  their  produce. 

It  suffices  to  say  that  agriculture  can,  and  must,  be  made 
to  attain  the  position  it  deserves,  for  there  is  no  question  but 
that  in  densely  populated  countries  every  acre  of  land  ought 

'55 


THE  REAL  WEALTH  OF  NATIONS 

to  be  farmed  in  the  most  efficient  and  intensive  manner, 
whereby  the  greatest  number  of  workers  possible  can  be 
employed  in  tending  the  soil,  breeding  cattle,  pigs,  chickens, 
making  butter,  etc. 

The  cause  of  over-production  of  certain  articles,  as  well 
as  the  lack  of  wealth  due  to  inefficient  production  and  an 
excess  of  middlemen,  is  economic  '  licence.'  We  allow  men 
in  a  community  to  do  what  they  like  within  too  great  limits, 
regardless  of  the  effect  on  their  fellows.  We  allow  a  man 
to  be  what  he  likes,  and  instead  of  bringing  him  up  to  think 
that  his  first  duty  is  to  produce  the  equivalent  of  his  daily 
necessaries,  we  lead  him  to  think  that  it  is  to  earn  wages 
sufficient  to  buy  them. 

If,  then,  we  compel  a  man  to  be  a  producer,  we  should  ask 
ourselves  what  he  is  to  produce.  He  should  not  be  permitted 
to  enter  an  industry  employing  labour  of  low  average  skill 
unless  there  were  a  shortage  of  such  commodities  as  are  pro- 
duced for  home  consumption  by  such  labour,  nor  to  produce 
luxuries  or  try  to  stimulate  demand  for  a  luxury  article  in 
order  to  make  a  personal  profit  while  there  was  a  shortage  of 
necessaries.  It  is  true  that  it  is  no  use  producing  things  if 
we  do  not  consume  them,  but  it  is  also  true  that  consumption 
is  the  enemy  of  mankind. 

It  is,  of  course,  undeniable  that  an  increase  in  the  con- 
sumption of  a  given  article  can  benefit  certain  individuals, 
for  if  the  producers  and  the  handlers  of  this  are  making  a 
profit  from  it,  the  greater  the  waste  the  greater  their  profit. 
Indeed,  all  those  engaged  in  its  production  would  benefit. 
On  the  other  hand,  the  whole  of  the  remainder  of  the  com- 
munity would  suffer,  because  they  have  to  provide  these 
producers  with  all  other  commodities,  and  if  the  waste  in 
question  had  been  avoided  these  very  producers,  as  well  as  the 
whole  community,  could  have  enjoyed  a  shorter  working  day 
and  thus  have  had  leisure,  or  produced  something  else  that 
was  really  needed. 

Waste,  then,  is  the  enemy  of  mankind,  and  that  this  is  not 
generally  recognized  is  due  to  our  selfishness,  thinking  always 
of  the  individual,  or  a  set  of  men,  instead  of  the  whole  nation. 

156 


LIMIT    OF    ECONOMIC   WELL-BEING 

Waste  of  money  matters  not  a  jot,  save  to  an  individual, 
for  it  represents  merely  a  transfer,  whereas  waste  of  com- 
modities reacts  on  the  whole  community.  Necessaries  of  life 
should  be  treated  with  respect,  for  we  should  see  in  them 
the  labour  of  their  producer.  Luxuries  should  also  be  treated 
with  respect,  for  the  more  we  waste  the  less  there  is  for  others, 
and  as  all  we  can  extract  therefrom  is  pleasure,  we  should  at 
least  see  that  we  obtain  the  maximum  amount  possible,  while 
wasting  the  least  labour,  and,  so  far  as  is  possible,  let  others 
share  in  the  enjoyment. 

It  is  quite  true  that  the  greater  the  demand,  or  size  of  the 
'  market,'  for  an  article,  the  more  cheaply  it  can  be  produced, 
but  that  can  never  justify  waste,  and  the  increased  efficiency 
is  not  due  to  the  output,  but,  again,  to  the  brains  and  skill  of 
men  who,  seeing  the  possible  demand,  have  devised  methods 
whereby  labour  may  be  saved  and  the  cost  of  production 
decreased.  Nevertheless,  although  the  cost  per  article  de- 
creases, the  total  cost — i.e.,  destruction  of  irreplaceable  raw 
material  and  loss  of  labour-hours — must  increase,  for  could 
we  produce  5000  articles  at  less  cost  than  IOOO,  the  method 
of  manufacture  of  the  smaller  quantity  must  have  been  at 
fault.  Neither  the  consumer  as  such,  nor  the  waster  in  any 
walk  of  life,  has  any  virtues,  and  could  we  suddenly  do  with 
half  our  necessaries,  and  make  our  luxuries  last  twice  as  long, 
the  length  of  our  working  day  could  immediately  be  halved. 

Waste,  or  an  excessive  consumption,  certainly  stimulates 
production,  for  the  benefit  of  certain  individuals  or  sections 
of  the  population,  but  at  the  same  time  it  must  mean  harder 
work  for  the  whole  community.  Production  comes  first,  con- 
sumption can  never  overtake  it,  and  the  difference  between  the 
two  is  also  waste.  The  large  numbers  of  men  engaged  in  trying 
to  induce  people  to  buy  represents  to  a  large  extent  a  loss  of 
labour.  Because  an  article  has  been  produced,  to  induce  a  man 
to  buy  it  if  he  does  not  want  it,  or  to  waste  what  he  has  already 
got,  benefits  the  producers  and  handlers  of  it,  but  the  result 
to  the  community  is  merely  a  transfer  of  wealth,  destruction 
of  labour-hours,  and  therefore  longer  working  hours  for  all. 

For  example,  if  the  object  of  advertising  were  to  let  the 

157 


THE  REAL  WEALTH  OF  NATIONS 

public  know  where  an  article  needed  was  obtainable,  and  not 
personal  gain,  it  could  doubtless  be  achieved  at  a  thousandth 
of  the  present  cost  in  labour-hours. 

It  is  thus  clear  that  an  abuse  of  economic  liberty,  or  econo- 
mic licence,  cannot  be  permitted  in  a  civilized  community, 
and  that  as  complete  liberty,  either  to  the  child  or  the  man, 
is  incompatible  with  civilization,  so  a  nation's  prosperity 
depends  absolutely  on  the  denial  of  economic  liberty  to  the 
individual.  Indeed,  although  a  nation  must  be  free  to  pro- 
duce to  the  limit  of  its  capacity,  individuals  must  not  be 
permitted  to  produce  anything  they  wish,  regardless  of  whether 
the  goods  are  necessary  or  wanted,  or  yield  a  high  value  per 
worker,  nor  to  become  wealth-handlers  instead  of  producers. 
After  due  allowance  for  the  interests  of  the  community, 
however,  there  should  be  complete  liberty  to  produce  as 
largely  and  efficiently  as  possible,  and  interference  in  this  by 
one  nation  with  another  must  not  be  tolerated. 

The  workers,  when  they  read  of  unemployment  of  others, 
do  not  seem  to  realize  that  it  is  not  the  unemployed  who 
necessarily  suffer,  but  themselves,  and  that  if  the  unemployed 
who  continue  to  consume  necessaries  are  given  out-of-work 
pay,  wherewith  to  buy  these  while  doing  nothing,  the  value  of 
money  is  depreciated,  whereby  the  whole  community  suffers. 
That  is,  those  who  are  at  work  support  the  unemployed. 

Unemployment  means  non-production,  and  this  entails 
poverty.  The  producers  do  not  seem  to  realize  that,  whatever 
the  cause  of  strikes,  lock-outs,  or  unemployment,  they  must  pay 
the  cost — aye,  primarily  the  working  classes,  who  blindly  ap- 
plaud industrial  conflict  in  their  ill-founded  hatred  of  employers 
— and  that  unemployment  should  be  not  only  impossible  but 
forcibly  prevented.  It  is  quite  practicable  to  hold  in  reserve 
work  which  could  be  undertaken  at  certain  seasons  of  the  year, 
reafforestation  for  instance,  and  although  some  choice  of 
occupation  could  be  allowed,  the  obligation  of  everyone  to 
work,  and  if  possible  to  produce,  must  be  recognized.  Bread 
and  water  for  work-shies  is  not  cruelty  to  them,  but  justice 
to  the  workers. 

We  have  contemplated  in  the  foregoing  a  self-contained 

158 


LIMIT   OF    ECONOMIC   WELL-BEING 

nation,  and  before  we  pass  on  to  its  relations  with  others  we 
will  consider  its  potentialities  of  happiness,  or  the  limit  of 
economic  well-being  possible  to  it.  Given  the  raw  material, 
or  capital,  provided  by  Nature,  the  fewer  hours  required  to 
produce  its  necessaries  of  life,  the  more  luxuries  it  will  be  able 
to  create,  or  the  more  leisure  it  can  enjoy.  Every  nation  can 
or  must  originally  have  been  able  to  produce  all  its  own 
necessaries  of  life,  but  many  luxuries  would  remain  unattainable 
if  international  trade  were  not  permitted.  It  is  partly  for 
this  reason  that  foreign  trade  has  come  to  be  regarded  as  of 
such  great  importance,  for  we  know  that  many  of  our  luxuries 
must  be  obtained  from  foreign  countries,  and  we,  as  individuals, 
do  not  stop  to  think  what  the  nation  may  be  sacrificing  to  obtain 
that  which,  in  giving  us  pleasure,  may  afford  it  but  a  poor 
return.  Nor  could  any  sociologist  pretend  that  man  is  happier 
for  attainment  of  those  luxuries  of  whose  existence  he  was 
contentedly  unaware,  nor  that  the  raison  d'etre  of  foreign  trade — 
a  reduction  in  the  world's  labour-hours,  is  ever  considered  by 
those  who  profit  from  it. 

The  little  English  girl  who  during  a  shortage  of  bananas, 
on  being  told  by  her  mother  that  they  were  unknown  when  she 
was  a  child,  exclaimed  :  "  What,  no  bananas  !  How  dreadful !  " 
could  not  be  expected  to  consider  the  stokers,  sailors,  and  dock- 
labourers  concerned  in  their  transport  to  England,  nor  the  toil 
of  ill-paid  workers  there,  through  which  they  were  ultimately 
paid  for,  but  surely  an  educated  nation  should  not  be  so  blind. 

Needless  to  say  the  importation  of  bananas  happens  to  be 
an  excellent  thing,  but  the  fact  is  that  domestic  labour  is  not 
directly  exchanged  for  foreign  goods,  and  thus  it  is  easy  to 
overlook  the  longer  hours  of  work  and  the  hardships  that  the 
importation  of  the  latter  may  entail  for  others. 

It  is  evident  that  a  self-contained  nation  can  produce  all 
its  own  necessaries,  and  attain  a  certain  efficiency  in  so  doing, 
and  can  also  produce  a  certain  amount  of  luxuries,  and  that 
if  it  then  want  other  luxuries,  it  must  sacrifice  leisure  and 
produce  a  surplus  of  necessaries  or  of  its  domestic  luxuries  in 
order  to  exchange  them  for  the  foreign  luxuries,  which  it 
cannot  produce  from  the  raw  material  which  Nature  provides. 

159 


THE  REAL  WEALTH  OF  NATIONS 

Further,  although  by  allowing  other  nations  to  do  that  for 
which  they  are  more  naturally  fitted  than  ourselves  we  may 
increase  the  efficiency  of  our  own  production,  i.e.,  produce  a 
greater  value  per  man,  we  shall  only  succeed  in  doing  so  if  our 
efficiency  in  the  industry  we  surrendered  was  less  than  it  is  in 
the  one  by  which  we  replaced  it. 

Trade  between  nations,  as  between  individuals,  consists 
ultimately  in  an  exchange  of  goods  for  goods,  however  many 
intervening  parties  there  be,  for  although  the  producer  sells 
for  money,  this  is  useless  unless  it  can  be  employed  for  the 
purchase  of  other  goods. 

Thus  it  is  evident  that  an  exchange  of  the  surplus  pro- 
duced beyond  our  own  requirements  for  the  surplus  which 
another  nation  produces  requires  most  careful  scrutiny,  because 
just  as  in  an  exchange  between  individuals  both  parties  can 
never  get  the  better  of  the  same  bargain,  although  they  may 
think  they  do,  in  an  exchange  between  nations  one  may,  and 
almost  always  will,  get  the  better  of  another. 

It  is  undeniable  that  a  self-contained  nation  can  lead  its 
own  life.  It  can  decide  the  number  of  hours  it  will  work,  and 
if  it  prefer  to  have  a  short  working  day  with  a  consequent  low 
production,  and  to  enjoy  much  leisure,  no  other  nation  may 
prevent  it,  nor  should  anyone  say  that  it  is  worse  off,  or  less 
happy,  than  a  nation  which  works  longer  hours  in  an  endeavour 
to  enjoy  a  larger  quantity  of  material  luxuries.  On  the  other 
hand,  a  nation  which  deliberately  limits  its  working  hours 
to  less  than  those  of  other  nations — unless  it  can  make  good 
by  a  higher  efficiency,  attainable  only  through  respect  for 
skill — cannot  expect  to  enjoy  the  same  luxuries,  nor  to  attain 
permanently  such  a  high  standard  of  living,  or  education. 
Man  cannot  produce  luxuries  and  enjoy  education  and  leisure 
at  one  and  the  same  time,  any  more  than  it  is  possible  to  eat 
one's  cake  and  have  it,  and  a  nation's  material  and  moral 
prosperity,  its  possibilities  of  education  and  spiritual  welfare 
are  in  the  hands  of  its  workers,  not  in  those  of  its  talkers, 
for  they  depend  solely  on  the  value  produced  per  man — i.e.,  the 
proportion  of  producers  to  non-producers  and  the  quality  of 
its  industries — and  upon  nothing  else. 
1 60 


PART  III 

INTERNATIONAL  ECONOMICS 

CHAPTER   XIV 

THE   PRODUCTION  OF  WORLD-WEALTH 

IN  Part  II  the  principles  of  Economics  as  applied  to  a  self- 
contained  nation  were  considered,  and  in  Chapter  XIII 
we  saw  that  the  limit  of  economic  development  of  such  a 
nation  was  prescribed  by  the  education  of  its  people,  or  the 
quality  of  its  industries,  combined  with  its  natural  resources, 
or  the  capital  provided  by  Nature.  The  next  step,  therefore, 
is  obviously  an  examination  of  the  possibility  of  a  further 
advance  in  its  development,  if  advantage  be  taken  of  the  educa- 
tion and  natural  resources  of  other  countries.  So  far  as  the 
former  is  concerned,  we  found  in  Chapter  I  that  this  could  be 
effected  through  intercourse,  i.e.,  without  production  or  trade, 
and  it  remains  therefore  to  investigate  how  one  nation  can 
rise  to  a  higher  state  of  civilization  by  taking  advantage  of 
the  natural  resources  of  another. 

In  any  transaction  designed  to  benefit  the  first  nation  the 
second  nation  must  not  be  placed  at  a  disadvantage,  or  it 
would  be  equivalent  to  resorting  to  force  or  robbery,  and  as 
Economics  is  an  ethical  science,  neither  a  man  nor  a  nation 
can  be  permitted  to  exploit  his  fellows.  It  is  therefore  essential 
to  keep  in  mind  that  any  real  increase  in  the  world-production 
of  wealth  through  international  relationship  must  be  shared 
between  all  concerned. 

We  must  once  more  emphasize  the  fact  that  we  are  con- 
sidering not  only  material  wealth,  but  the  well-being  of 
humanity,  and  those  (generally  rich  men)  who  argue  that, 
because  an  Italian  workman  with  less  commodities  or  wages 
may  be  happier  than  an  Englishman  with  more,  material 

161 


THE  REAL  WEALTH  OF  NATIONS 

wealth  is  not  so  important  after  all,  have  once  again  fallen 
into  that  error,  so  common  to  unscientific  minds,  of  consider- 
ing two  variables  at  one  and  the  same  time.  It  is  the  Italian 
workman  with  more  or  less  wealth  that  we  must  contemplate, 
and  not  merely  more  or  less  material  wealth,  but  more  or 
less  leisure  in  which  to  enjoy  the  beauties  that  both  Nature 
and  man  provide,  and  to  say  that  a  man,  even  a  light-hearted 
Italian,  can  ever  have  too  much  well-being,  or  ever  be  satisfied 
to  stand  still,  is  to  deny  his  essential  characteristics  and 
superiority  to  animals.  Were  man,  indeed,  content  with  his 
present  surroundings  he  could  not  progress,  and  the  same  is 
true  of  a  nation  which  is,  or  becomes,  satisfied  to  remain 
stationary.  Nevertheless,  the  mere  desire  to  possess  material 
wealth,  particularly  that  of  others,  is  no  sign  of  civilization, 
as  witness  the  black  races  when  brought  into  contact  with 
the  white,  and  all  discontent  is  not  divine.  Quite  another 
matter  is  man's  natural  desire  to  create  wealth  ;  this  should 
be  beneficial  to  humanity. 

We  found  when  investigating  the  national  production  of 
economic  wealth  that  the  value  of  the  resultant  was  measured 
by  its  relation  to  the  average  man's  daily  necessaries  of  life, 
the  consumption  of  which  determines  the  national  cost  of 
production,  so  that  when  we  proceed  to  consider  the  world- 
production  and  measurement  of  economic  wealth,  we  are 
immediately  confronted  with  the  undeniable  fact  that  the 
same  articles  have  a  different  value  and  cost  in  different 
climates.  In  other  words,  it  is  impossible  to  consider  the 
world  as  a  nation,  or  the  production  of  wealth  of  the  whole 
world  as  an  identical  operation.  We  must  differentiate 
according  to  climatic  conditions,  or  once  again  divide  the 
world  into  nations,  though  neither  their  number  nor  bound- 
aries need  necessarily  correspond  with  those  existing  to-day. 

Our  unit  of  value  and  cost  of  production  are  therefore 
only  alike  where  both  climate  and  race  are  identical,  and, 
although  it  evidently  benefits  the  world  as  a  whole  that  goods 
should  be  produced  where  the  cost  of  production  is  lowest, 
it  does  not  necessarily  follow  that  the  producers  themselves 
would  be  gainers  if  they  worked  for  other  nations. 
162 


PRODUCTION    OF    WORLD-WEALTH 

For  instance,  if  goods  produced  in  a  country  where  both 
the  cost  of  production  (number  of  labour-hours)  and  the  unit 
of  value  (the  daily  necessaries  of  life  of  the  average  man)  are 
lower  be  transported  to  another  land  where  they  are  higher, 
a  dual  advantage  results  to  the  inhabitants  of  the  latter,  for 
the  goods  have  there  a  higher  value  in  that  they  save  more 
daily  necessaries  of  life  and  relatively  cost  less. 

Indeed,  considering  the  cost  of  production  not  in  terms  of 
labour-hours,  but  in  relation  to  the  consumption  of  necessaries, 
the  rest  of  the  world  would  certainly  benefit  at  the  expense 
of  an  undeveloped  nation  with  small  requirements  of  necessaries 
which  worked  long  hours  to  supply  it  with  certain  commodities, 
and  it  might  be  quite  prepared  to  compel  the  latter  to  do  its 
unskilled  work.  Such  action  would  not  do  violence  to  the 
economic  interests  of  the  majority,  but  it  would  not  benefit 
the  undeveloped  nation  and  could  not  be  advocated  on  humani- 
tarian grounds,  being  akin  to  slavery  and  therefore  anti- 
economic.  It  is  clear,  therefore,  that  economically  the  lowest 
cost  of  production  can  only  be  obtainable  where  labour-hours 
are  at  the  minimum,  and  the  two  considerations  are  inseparable. 

Nevertheless,  if  all  men  and  all  races  be  not  equal,  the 
least  developed  peoples  cannot  avoid  economic  subjection  to 
a  higher  civilization,  any  more  than  can  the  unskilled  to  the 
skilled  workers  of  a  particular  nation,  and,  providing  that  the 
superior  recognize  their  responsibilities,  and  do  not  prevent 
advancement  of  their  inferiors,  there  is  no  harm  therein, 
economic  and  physical  slavery  being  entirely  distinct  from 
one  another.  Thus  a  nation  like  the  Romans,  which  imported 
slaves  to  do  its  menial  work,  is  economically  justified  provided 
that  it  improves  the  conditions  of  living  of  its  slaves,  and 
does  not  deny  them  that  liberty  of  mind  to  which  all  man- 
kind is  entitled.  Physical  slavery  is,  however,  not  permissible 
because  owing  to  human  frailties  it  is  impossible  to  keep 
apart  moral  and  material  subjection. 

We  have  considered  above  the  lowest  scale  of  wealth- 
production,  i.e.,  unskilled  workers  with  different  standards 
of  living,  but  if  we  regard  the  other  extremity  we  shall  find 
a  still  further  essential  distinction  between  national  and 

163 


THE  REAL  WEALTH  OF  NATIONS 

world-production,  a  further  limitation  of  the  law  that  goods 
should  be  produced  where  their  cost  of  production  is  lowest. 

In  our  self-contained  nation,  although  all  men  did  not 
produce  wealth  to  an  equal  extent,  they  nevertheless  all 
benefited  by  the  development  of  higher  industries  owing  to 
the  increased  availability  of  commodities,  wherefore  the 
obligation  of  the  fortunate  to  contribute  more  to  the  cost  of 
government  and  to  participate  with  the  less  successful.  So 
far,  however,  there  is  no  indication  that  the  world  has  neared 
that  point  at  which  a  richer  nation  will  be  ready  to  share  its 
wealth  with  a  poorer  one,  or  to  bear  the  cost  of  government 
of  another  which  is  less  well  endowed. 

If,  for  instance,  owing  to  its  natural  resources  or  to  its 
higher  development,  a  nation  enjoyed  a  monopoly  of  the  best 
industry,  it  would  not  be  willing  to  hand  over  part  of  the 
resultant  wealth  to  another  nation  which  had  been  naturally 
unable  to  develop  this  industry  or  had  failed  to  educate  itself 
to  do  so,  because  the  altruistic  education  of  no  nation  is 
sufficiently  advanced  to  admit  any  obligation  in  either  case. 

It  is  clear,  therefore,  that  nations  do  not  share  in  world- 
wealth  as  individuals  in  national  wealth,  and  that  conse- 
quently there  is  a  fundamental  distinction  between  national 
and  world-production  of  wealth. 

Further,  although  every  nation  should  in  the  first  instance 
produce  that  which  requires  least  labour-hours  for  a  given 
value,  i.e.,  do  that  for  which  by  nature  it  is  best  suited,  and 
should  not  do  that  for  which  it  is  unsuited,  it  ought  not  to 
stand  still,  but  endeavour,  by  utilizing  its  superior  men  and 
education,  to  rise  to  ever  higher  industries,  of  the  fruit  of 
which  it  must  not  be  robbed. 

It  follows  that  no  nation  may  be  prevented  from  attempting 
to  raise  itself  by  education  and  the  application  thereof  to 
higher  industries,  nor,  even  if  it  have  less  natural  advantages, 
from  endeavouring  to  develop  them ;  for,  alternatively,  not 
only  would  the  inequality  of  nations  be  accentuated  by  the 
more  fortunate  monopolizing  the  highest  wealth-producing 
industries,  but  those  countries  with  few  or  no  natural  advan- 
tages would  become  depopulated,  and  if  migration  were  per- 
164 


PRODUCTION    OF    WORLD-WEALTH 

mitted  some  nations  would  eventually  become  extinct.  If  we 
compare  the  hardships  of  the  Eskimos  with  the  ease  of 
living  in  temperate  and  luxuriant  climes,  and  consider  the 
consequences  of  all  nations  being  free  to  remove  to  the  most 
fruitful  lands,  it  is  apparent  that  the  latter  must  indeed  lead 
to  continual  war,  conquest,  and  re-conquest.  Thus,  non- 
recognition  of  the  sanctity  of  nations,  advocated  by  many 
so-called  thinkers  who  dub  themselves  internationalists  and 
glory  in  having  no  nationality,  would  involve  the  downfall 
of  civilization. 

Although  each  nation  should  produce  that  for  which  it  is 
best  suited,  it  cannot  be  permitted  to  interfere  with  any  other 
less  favourably  endowed,  which  endeavours  to  produce  iden- 
tical commodities.  That  is,  an  increase  in  wealth-production 
is  not  permissible  if  obtained  at  the  expense  of  other  nations. 
This  principle  of  non-interference,  and  recognition  of  the 
right  of  each  nation  to  its  maximum  economic  development, 
is  essential  not  only  to  the  peace  of  the  world,  but  for  the  very 
existence  of  small  nationalities. 

If,  then,  every  nation  should  produce  that  for  which  it  is 
best  suited,  the  question  naturally  arises,  what  must  it  begin 
with,  and  the  answer  is  necessaries  of  life — yea,  even  if  it  be 
at  a  disadvantage  in  producing  them.  That  it  can  do  so 
is  obvious  from  the  fact  that  it  exists,  and  as  no  nation  has 
yet  reached  the  limit  of  its  agricultural  development,  nor 
must  of  necessity  depend  upon  the  products  of  other  climes 
(e.g.,  it  could  dispense  with  cotton  goods  and  use  linen,  etc.), 
the  problem  of  over-population  should  nowhere  be  acute. 

The  greater  importance  of  necessaries  as  compared  with 
luxuries,  to  which  we  referred  under  National  Economics,  is 
intensified  in  the  case  of  international  relationships,  for 
although  a  government  should  be  expected  to  control  its  own 
subjects,  and  see  that  an  adequate  supply  of  necessaries  is 
available  before  luxuries  are  produced,  it  cannot  compel  those 
of  another  nation  to  provide  a  surplus  of  necessaries  beyond 
its  own  requirements. 

Further,  just  as  individuals  have,  up  to  the  present,  been 
permitted  to  profiteer  at  the  expense  of  their  fellow-country- 

165 


THE  REAL  WEALTH  OF  NATIONS 

men,  so  can  and  will  nations  profiteer,  and,  indeed,  with  more 
excuse,  for  they  are  not  fellow-countrymen  ;  one  may  think 
the  other  undeserving  or  foolish,  and,  as  the  former  does  not 
share  in  the  latter's  prosperity,  or  benefit  from  its  government, 
the  latter  has  no  claim  to  consideration. 

Thus,  both  a  man  and  a  nation  which  are  dependent  upon 
others  for  their  daily  necessaries  of  life  are  at  their  mercy, 
and  exposed  to  profiteering  and  coercion,  for  if  a  moment 
arrives  when  the  people  are  starving,  the  nation  must  needs 
sacrifice  everything  to  obtain  food.  Consequently  a  nation 
which  gives  up  the  production  of  its  own  necessaries  of  life 
surrenders  its  economic,  and  possibly  its  entire,  independence, 
and  so  long  as  present  human  frailties  endure  no  nation  should 
be  dependent  upon  another  for  its  primary  necessaries  of  life. 

A  nation  misled  by  illusionists  may  indeed  say  :  "  Why 
work  hard  to  produce  necessaries  when  we  can  get  others  to 
do  the  rough  work  ?  "  and  it  may  give,  in  exchange  for  these, 
luxuries,  easily  produced,  or  raw  material  provided  by  Nature. 
Obviously  this  nation  barters  its  security,  like  a  gambler 
who,  in  a  state  of  intoxication,  stakes  his  life  upon  a  throw. 

There  is,  however,  another  non-economic  factor  which 
we  must  not  overlook,  viz.,  war,  or  force,  for  even  were  the 
League  of  Nations  powerful  enough  to  compel  disarmament 
and  universal  arbitration,  a  nation  which  was  dependent  upon 
others  for  its  necessaries  of  life  would  have  no  means  of  resist- 
ance, though  its  cause  were  just. 

Thus,  even  if  agriculture  were  an  un-economic  industry, 
even  if  it  did  not  breed  a  healthy  population,  the  maintenance, 
the  integrity,  the  strength,  and  the  defence  of  every  country 
necessitates  some  sacrifice  of  wealth-production  for  many 
generations. 

Having,  then,  safeguarded  national  security,  how  can  a 
nation  rise  through  international  intercourse  above  the  eco- 
nomic development  possible  to  an  isolated  people  save  by 
increasing  the  production  of  those  commodities  which  re- 
present a  high  value  per  worker  (be  it  '  economic  '  or  '  joy  * 
wealth)  and  by  reducing  the  number  of  workers  in  the  less 
skilled  industries  ?  It  has,  indeed  (considering  a  given  and 

166 


PRODUCTION    OF    WORLD-WEALTH 

efficient  population),  no  more  workers  available,  and  does  not 
wish  to  increase,  but  rather  to  diminish,  its  average  working 
hours,  therefore  it  can  only  benefit  if  it  induces  other  countries 
to  do  for  it  work  for  which  they  are  more  suitable,  and  devotes 
itself  to  a  higher  production.  As  this  must  apply  to  every 
nation,  unless  wealth  increase  is  to  be  obtained  at  the  expense 
of  others,  the  following  principle  must  govern  international 
economic  relationships. 

Every  nation  should  do  that  for  which  it  is  best  suited, 
but  no  nation  should  willingly  do  work  for  another  unless 
the  value,  intrinsic  in  the  case  of  necessaries,  exchange  value 
in  that  of  luxuries,  produced  per  worker  in  a  given  time  be 
greater  than  would  have  been  obtainable  had  it  done  the  same 
work  for  its  own  consumption.  By  "  that  for  which  it  is  best 
suited  "  we  mean,  not  that  for  which  it  is  naturally  suited, 
but  that  for  which  a  nation  by  its  education  combined  with 
the  use  of  its  own  or  other  countries'  raw  material  can  fit 
itself.  Thus  the  Swiss  were  intended  by  Nature  for  an  agri- 
cultural community,  yet  have  by  education  developed  arti- 
ficial industries,  the  electrical  for  instance,  for  which  almost 
all  the  raw  material  is  imported,  yielding  a  considerably  higher 
value  per  worker,  to  the  advantage  of  the  whole  nation.  Did 
the  industry,  indeed,  produce  a  lower  value  than  agriculture, 
Switzerland  would  obviously  be  richer  without  it. 

In  the  foregoing  we  have  considered  civilized  nations 
which  can  educate  themselves  by  intercourse,  but  savage  and 
less  gifted  races  inhabit  large  tracts  of  land,  much  of  the  most 
fertile  description.  If  the  earth  be  made  to  support  and 
nourish  man,  and  certain  races  are  incapable  of  developing 
Nature's  resources  where  they  dwell,  there  is  obviously  justi- 
fication for  interference,  or  colonization,  if  it  lead  to  a  higher 
civilization.  We  do  not  pronounce  an  opinion  as  to  whether 
the  lower  races  are  intended  ultimately  to  become  extinct, 
but  we  do  say  that  if  colonization  is  to  be  justified  it  must 
improve  the  condition  of  the  natives  both  materially  and 
morally.  Further,  just  as  the  producer  of  wealth  while 
having  the  first  call  upon  what  he  produces  must  share  with 
his  fellows,  so  the  colonists  are  entitled  to  claim  the  wealth- 

167 


THE  REAL  WEALTH  OF  NATIONS 

increase  due  to  their  efforts,  provided  they  recognize  that  they 
hold  the  land  in  trust,  and  suitably  reward  the  unskilled  labour 
of  its  original  inhabitants. 

Improvement  in  the  moral  condition  of  natives  is  a  much 
more  difficult  problem,  and  calls  for  highly  qualified  teachers 
with  high  ideals,  for  unfortunately  it  is  a  fact  that  one  race 
does  not  through  intercourse  necessarily  imbibe  the  best 
qualities  of  another.  Indeed,  a  lower  race  is  apt  to  copy  the 
vices  rather  than  the  virtues  of  its  masters.  The  government 
of  subject  races,  although  of  economic  importance  to  the 
whole  world,  should  be  left  to  nations  with  approved  capacity 
for  undertaking  it,  and  international  rivalry  could  be  obviated 
by  some  share  of  the  wealth  produced  being  paid  to  nations 
without  colonies.  This  would  not  seriously  affect  the  induce- 
ment to  colonize,  and  in  any  case  the  exploitation  of  subject 
races  for  purely  individual  profit  is  quite  unjustifiable. 

Having  seen  the  essential  differences  between  the  problems 
of  national  and  world-production  of  wealth,  and  remembering 
that,  in  spite  of  the  primary  importance  of  production,  a 
country's  wealth,  like  that  of  an  individual,  can  actually  be 
increased,  although  also  lost,  by  barter,  because  it  may  receive 
a  less  value  than  it  gives,  owing  to  the  fact  that  when  goods 
are  once  produced  nothing  can  add  to,  or  detract  from,  their 
real  value,  we  will  pass  to  an  investigation  of  world-trade, 
or  international  exchange,  which,  obviously  affording  greater 
opportunity  than  production  for  interference,  indirectly  at 
least,  by  one  nation  with  another,  needs  the  most  careful 
scrutiny. 


168 


CHAPTER   XV 

INTERNATIONAL  SUBDIVISION  OF   LABOUR,  OR 
INTERNATIONAL  TRADE 

JUST  as  a  subdivision  of  labour  in  our  self-contained 
nation,  whereby  men  do  work  of  various  degrees  of  skill 
according  to  their  capacity,  necessitates  the  exchange 
of  goods,  or  trade,  so  does  international  subdivision  of  labour 
— for  when  each  nation  does  the  work  for  which  it  is  best  suited, 
that  is  what  it  amounts  to — introduce  international  exchange 
or  trade.  In  the  earliest  days  of  the  world's  history  nations 
exchanged  unessential  commodities  with  one  another,  each 
receiving  in  return  for  a  surplus  of  its  own  products  various 
articles  which  it  could  neither  produce  nor  find  within  its 
own  borders,  and  which,  therefore,  it  prized  inordinately. 
We  read,  for  instance,  of  the  Phoenician's  purple  dye,  the 
pearls  of  Araby,  and  of  how  the  early  Britons  exchanged  tin 
for  ornaments — in  fact,  most  schoolboys  have  been  wearied 
with  accounts  of  trading  transactions  in  articles  which  they 
have  never  seen  nor  tasted,  which  are  of  no  interest  to  them, 
and  the  inner  meaning  of  which  has  never  been  explained 
to  them.  It  was  the  rich  and  powerful  of  those  days  who 
clamoured  for  these  commodities,  always  more  or  less 
luxuries,  for  nations  did  not  yet  dream  that  their  necessaries 
could  be  obtained  save  by  producing  them.  The  riches  of 
Rome  of  which  we  read  give  no  indication  that  its  people 
generally  were  prosperous  or  happy.  Little  recked  the  searchers 
after  new  luxuries  of  how  these  were  to  be  paid  for ;  they 
thought  only  of  how  they  could  satisfy  their  desires. 

Although,  therefore,  history  is  silent  as  to  trade  in  neces- 
saries, we  frequently  read  of  a  shortage  of  food,  due  to  bad 
harvests,  and  if  in  modern  times  the  wealthy  nations  have  been 

169 


THE  REAL  WEALTH  OF  NATIONS 

spared  such  suffering,  it  is  not  due  to  the  thought  applied  by 
Governments  to  the  supply  of  necessaries  for  their  people,  but 
to  the  agricultural  and  industrial  development  of  new  lands, 
which  has  provided  a  considerable  surplus  of  food,  etc.,  beyond 
the  needs  of  the  settlers,  and  has  raised  to  an  enormous  extent 
the  average  production  of  the  whole  world.  The  reader  may 
be  tired  of  reading  about  necessaries,  but  assuredly  he  never 
will  be  of  consuming  them,  and  although  trade  in  them  is 
unsung,  nations  have  frequently  made  war  to  seize  them  or 
the  means  of  obtaining  them  in  ancient  and  modern  times. 
The  rape  of  the  Sabine  women  is  an  instance  of  force  being 
used  for  the  perpetuation  of  a  race.  It  appears  indeed  that 
hitherto  all  trade  has  been  war,  each  party  having  desired  to 
get  the  better  of  the  other  or  to  give  the  least  and  obtain  the 
most  possible,  and  this  state  of  affairs  will  continue  so  long 
as  no  equitable  basis  for  exchange  is  recognized  and  the  law  of 
supply  and  demand  operates. 

We  investigated  in  Chapter  V  the  principles  of  exchange 
between  members  of  a  community,  or  in  a  self-contained 
nation,  both  for  necessaries  and  luxuries,  and  found  that 
whereas  in  regard  to  necessaries  it  was  possible  to  say  definitely 
when  a  fair  bargain  was  struck,  in  the  case  of  luxuries  it  was 
merely  a  matter  of  opinion.  We  shall  find  that  this  is  equally 
true  in  international  exchange. 

Considering  necessaries  first,  as  the  key  to  the  problem,  it 
is  evident  that  in  a  direct  exchange  between  two  nations,  as 
between  two  individuals,  any  departure  from  the  basis  of 
intrinsic  value  must  benefit  one  at  the  expense  of  the  other, 
and  the  intrinsic  value  produced  being  proportional  to  the 
skill,  brains,  and  mind  invested,  the  exchange  value  or  price 
should  strictly  correspond  therewith.  We  know,  however, 
that,  owing  to  non-recognition  of  this  fact  and  to  economic 
licence,  or  profiteering,  the  exchange  value  does  not  as  a  rule 
correspond  with  the  intrinsic  value,  and  that  in  every  such 
case,  assuming  labour  equality,  the  difference  between  the 
two  represents  a  profit  to  one  nation  at  the  expense  of  the 
other.  Thus,  assuming  equal  quality  of  labour  to  produce 
woollen  garments  in  England  and  potatoes  in  France  if  1 000 
170 


INTERNATIONAL  TRADE 

French  workers  obtain  a  lower  exchange  value  or  price  for 
a  month's  work  than  lOOO  English  workers  do  for  theirs,  or, 
what  is  the  same  thing,  obtain  the  exchange  value  of  the 
labour  of,  say,  900  English  workers,  England  benefits  by  the 
exchange,  because  the  French  labour,  being  of  equal  quality, 
should  have  been  able  to  obtain  the  same  exchange  value 
in  900  hours  had  it  produced  itself  the  woollen  garments. 
Although  goods  are  paid  for  by  goods,  the  exchange,  at  the 
bottom,  is  labour  for  labour,  and,  again  assuming  equal  quality, 
the  labour  of  both  parties  should  be  equal  in  quantity. 

This  conclusion  is  identical  with  that  at  which  we  arrived 
in  considering  an  internal  exchange  of  necessaries,  but,  as 
we  should  expect,  knowing  the  essential  difference  between 
necessaries  and  luxuries,  in  an  international  exchange  of  the 
former  for  the  latter  there  is  a  vital  difference  to  be  noted. 
As  the  exchange  value  of  a  pure  luxury,  or  any  luxury  value 
whatsoever,  depends  entirely  upon  demand,  if  a  producer  of 
luxuries  obtains  a  high  price  for  his  product  in  exchanging  it 
at  home  for  necessaries,  the  transaction  merely  benefits  him 
at  the  expense  of  his  fellow-producer  of  the  latter  and  re- 
presents no  gain  to  the  nation,  whereas,  again  assuming  iden- 
tical labour  quality,  if  the  French  pay  a  relatively  high  price 
for  a  luxury  produced  in  England,  the  latter  is  undoubtedly 
richer  thereby.  At  the  same  time,  it  cannot  be  said  that  the 
French  have  the  worst  of  the  bargain,  as  they  may  prize  the 
luxury  inordinately,  and  the  fact  that  England  has  benefited 
in  the  exchange  is  not  due  to  unfairness,  but  to  the  foolishness 
of  the  French. 

As  an  instance  of  a  converse  transaction,  French  fashion 
designers  (let  us  hope  also  their  work-people)  become  wealthy 
at  the  expense  of  other  nations  through  the  inability  or  un- 
willingness of  the  latter  to  design  their  own  millinery  and 
costumes,  yet  the  fact  that  the  extravagance  of  well-to-do 
women  actually  causes  poverty  to  their  fellow-countrymen 
and  women  is  a  cause  of  reproach  not  so  much  against  them 
as  against  the  false  doctrines  of  economists.  The  wearer  of 
an  expensive  French  hat  has  never  been  told  that  our  workers 
must  produce  common  necessaries  to  the  same  exchange 

171 


THE  REAL  WEALTH  OF  NATIONS 

value  to  pay  for  it ;  she  is,  rather,  praised  for  promoting  foreign 
trade. 

The  same  principles  apply  to  an  international  exchange  of 
luxuries  for  luxuries,  because  in  every  case  that  nation  gains 
at  the  expense  of  the  other  which  obtains  the  higher  exchange 
value  for  equal  labour,  amount  and  quality.  We  have, 
however,  noted  the  distinction  between  home  and  foreign 
trade,  that  while  the  former  can  only  alter  the  distribution  of 
wealth,  the  latter  can  actually  increase  wealth,  and,  similarly, 
while  intrinsic  value  is  of  paramount  importance  in  home 
trade,  it  is  exchange  value  that  matters  in  foreign  trade,  for 
until  a  nation  has  learned  to  consider  the  equitable  reward 
of  its  own  workers  it  is  not  going  to  concern  itself  as  to  that 
of  the  people  of  other  lands. 

We  have  seen  that  a  nation  can  become  richer  by  foreign 
trade,  but  that  this  is  always  at  the  expense  of  another  one, 
whence  it  is  clear  that  an  increase  in  the  world's  wealth  through 
trade  is  an  impossibility.  Nevertheless,  we  have  all  been 
brought  up  to  believe  that  our  nation  became  rich  through 
foreign  trade,  and  that  it  was  vital  to  the  interests  of  every 
people.  On  the  other  hand,  home  trade  has  been  ignored  and 
no  appeal  to  the  imagination  has  been  made  for  it,  whence  it 
is  essential  that  we  should  investigate  the  cause  of  such  tragic 
stupidity,  the  effect  of  which  is  seen  in  the  life  of  every  man 
and  woman  among  us. 

We  have  already  dealt  with  this  question  to  some  extent  in 
considering  internal  trade,  but  as  individuals  who  appreciate 
that  a  whole  people  cannot  get  richer  by  exchange  of  com- 
modities among  themselves  nevertheless  believe  that  not  only 
their  own  nation,  but  all  others  simultaneously,  can  amass 
wealth  through  trade,  we  will  not  apologize  for  any  repetition. 

The  original  international  traders  referred  to  at  the  begin- 
ning of  this  chapter  were  confessedly  deficient  in  altruistic 
education,  they  cared  nothing  about  their  fellow-countrymen, 
and  certainly  never  posed  as  philanthropists.  To-day  men 
dare  not  admit  such  defects  in  their  character,  and  have,  in 
addition,  the  advantage  of  knowing  that  goods  are  paid  for 
by  goods.  Some,  indeed,  argue  that  goods  are  paid  for  by 
172 


INTERNATIONAL  TRADE 

money,  but  we  know  that  this  is  only  a  token  for  goods,  and 
the  idea  that  goods  are  alternatively  paid  for  by  services  is 
equally  fatuous,  for  what  are  services  but  labour,  and  how 
is  labour  paid  for  but  by  goods  ?  Thus,  goods  are  always  paid 
for  by  goods  in  the  end,  although  payment  may  be  deferred. 

How  comes  it,  then,  that,  knowing  that  whatever  goods 
are  sent  out  of  a  country  corresponding  goods  must  enter  it, 
anyone  can  believe  that  a  nation  necessarily  gets  rich  by 
exchange  or  trade  ?  The  answer  is  to  be  found  in  the  pro- 
found reflection  that  goods  ready  for  export  have  no  value  if 
they  cannot  be  exported,  whence  export  or  trade  creates  value 
and  wealth  ! 

Once  more  we  find  the  economists  starting  in  the  middle 
and  ignoring  the  beginning,  viz.,  the  production  of  these 
goods.  If  they  be  necessaries,  we  have  shown  that  they  have 
value  whether  exported  or  not,  because  we  can  consume  them 
ourselves  and  thus  save  future  labour.  If  they  represent  only 
luxury  value  they  may  be  wasted  if  no  one  wants  them,  but 
then  they  never  had,  nor  can  they  acquire,  any  real  value. 
It  is  true  that  the  foreign  consignee  may  give  us  value,  either 
in  goods  or  money  wherewith  to  buy  them  ;  indeed,  it  is  only 
in  anticipation  of  this  that  the  articles  in  question  were  pro- 
duced. We  know  that  the  cost  of  production  is  the  necessaries 
consumed  by  the  workers,  and  if  a  set  of  men,  or  a  nation, 
are  so  foolish  as  to  waste  necessaries,  or  real  value,  or  their 
time,  in  producing  articles  which  no  one  wants,  and  in  exchange 
for  which  nothing  is  obtainable,  they  deserve  no  sympathy. 
Of  course,  they  may  make  a  mistake,  but  people  have  to  pay 
for  their  errors  of  judgment,  and  such  cannot  affect  value,  nor 
the  laws  of  Economics. 

Our  readiness  to  accept  the  foolish  theory  mentioned  above 
is  due  to  the  fact  that  the  individual  exporter  does  obtain 
wealth  through  exports,  and  other  people  see  him  do  it,  yet 
neither  he  nor  they  have  discerned  the  possibility  that  the 
goods  exported  may  have  a  higher  intrinsic  value  than  those 
imported,  or  may  cost  more  (i.e.,  real  cost,  or  labour)  to  produce. 
The  exporter,  who  gets  paid  in  money,  is  not  concerned  with 
the  corresponding  imported  goods,  he  cares  nothing  for  the 

173 


THE  REAL  WEALTH  OF  NATIONS 

amount  of  labour  expended  upon  the  production  of  those 
which  he  exports,  and  he  probably  believes  that  the  nation, 
as  well  as  himself,  benefits  through  his  activities,  although, 
as  we  have  shown,  it  is  quite  possible  that  the  nation  loses. 

The  law  of  supply  and  demand,  which  we  have  unmasked 
as  merely  a  vast  pretence,  is  the  foundation  on  which  these 
sand-castles  are  built.  If  demand,  or  carrying  goods  to  those 
who  want  them,  creates  value,  at  what  moment  does  it  appear 
and  who  is  responsible  ?  Evidently  not  the  producers  of  the 
goods,  whatever  their  skill,  for  the  goods  have  no  value  if  no 
one  wants  them.  It  follows  that  to  want  must  be  creative  also. 

The  evils  arising  from  this  delusive  law  of  supply  and  demand 
in  internal  trade  are  intensified  in  international  trade,  for 
not  merely  are  workers  exploited  and  placed  in  economic 
subjection  to  their  fellows  at  home,  but  they  are  the  victims  of 
unfair  competition  with  workers  of  other  countries. 

Yet  it  is  undeniable  that  nations  appear  to  get  rich  through 
foreign  trade,  and  we  have  an  idea  that  the  law  of  supply  and 
demand  was  an  accessory  after  the  fact.  For  instance,  the 
truth  that  most  goods  are  made  to  order  or  to  anticipated 
orders  may  have  originated  the  notion  of  "  demand  creating 
supply,"  although  we,  for  our  part,  are  quite  satisfied  that 
brains  and  skill,  and  not  demand,  created  the  first  locomotive 
and  every  improvement  thereon.  Thus  it  is  desirable  to  dis- 
close the  real  source  of  a  national  wealth-increase  which  follows 
international  trade. 

Let  us  assume,  therefore,  that  exchange  between  nations 
takes  place  on  the  basis  of  equal  intrinsic  value  as  regards 
necessaries,  and  equal  exchange  value  for  equal  labour  quality 
as  regards  luxuries.  In  transactions  upon  this  basis  there 
will  be  no  gain  to  a  nation  from  the  mere  process  of  trading, 
but  we  shall  find,  nevertheless,  that  they  may  result  in  a 
nation's  being  gainer  through  them.  We  will  not  fall  into  the 
error  of  considering  goods  already  made,  but  will  begin  at  the 
beginning,  and  compare  the  nation's  wealth  before  the  pro- 
duction of  its  goods  for  export  and  after  the  receipt  of  the 
goods  imported  in  exchange. 

An  order  having  been  placed  in  England,  say  by  India, 
174 


INTERNATIONAL  TRADE 

for  locomotives  to  the  value  of  £100,000,  to  be  paid  for  by  the 
import  of  rice  and  raw  cotton  to  the  like  amount,  it  follows 
that  before  the  preliminaries  were  arranged  there  were  certain 
irreplaceable  raw  material  and  labour  waiting  to  get  to  work 
in  both  countries.  Also  at  the  completion  of  the  contract 
England  would  possess  a  supply  of  cotton  and  rice,  and  India 
a  number  of  locomotives. 

Now,  the  English  labour  that  built  the  locomotives  might 
have  been  used  for  other  profitable  purposes,  as  also  the  material 
of  which  they  were  constructed,  or  the  locomotives  might  have 
been  built  for  home  use.  Similarly  the  Indians,  who  have 
lost  the  rice  and  cotton  they  produced,  representing  the 
labour  of  a  number  of  workers  plus  the  wear  of  any  implements 
or  machines  containing  their  own  irreplaceable  raw  material, 
might  have  produced  something  else,  or  kept  the  rice  and 
cotton  for  themselves,  and  enjoyed  the  luxury  of  leisure. 
Thus  the  question  we  must  answer  is,  are  either  or  both 
countries,  having  received  an  assumed  equal  intrinsic  value, 
now  better  off  than  they  were  previously  ?  Undoubtedly 
the  English  are,  because  they  have  exchanged  the  labour  of 
a  small  number  of  skilled  workers  for  that  of  a  larger  number 
of  unskilled. 

The  English  workers  consume  necessaries  (we  can  assume 
these  to  be  actually  rice  and  cotton),  and  the  number  of 
their  labour-hours  being  much  less  than  that  of  the  Indians, 
the  £100,000  worth  of  rice  and  cotton  must  represent  a  large 
surplus  beyond  their  own  consumption  of  necessaries,  or 
intrinsic  value.  This  surplus  must  exactly  equal  the  intrinsic 
value  of  the  locomotives  less  the  necessaries  consumed  in 
their  production.  Expressed  otherwise,  the  locomotive  builders 
have  got  their  necessaries,  and  a  big  surplus  beyond,  because 
the  larger  number  of  Indians  engaged  in  producing  the  rice 
and  cotton  had  obviously  to  live  while  doing  so,  whence, 
unless  these  people  could  not  have  existed  on  the  rice  and 
cotton  they  produced  (or  their  equivalent  in  other  neces- 
saries), when  their  country  would  be  poorer  for  having  pro- 
duced them,  the  quantity  of  necessaries  they  consumed,  and 
consequently  have  produced,  must  far  more  than  cover  the 

'75 


THE  REAL  WEALTH  OF  NATIONS 

necessaries  of  perhaps  half  their  number  of  English  loco- 
motive builders.  It  is  clear,  therefore,  that  England  has 
benefited  by  this  transaction,  that  the  gain  is  the  difference 
between  the  value  of  necessaries  received  and  of  necessaries 
consumed,  and  arises  solely  from  the  quality  of  the  English 
production.  But,  some  may  object,  the  Indians  benefit  also 
by  receiving  the  locomotives,  the  use  of  which  will  save  labour 
and  increase  the  production  of  their  rice  and  cotton.  This 
is  undeniable,  and  it  will  be  noted  that  the  source  of  their 
profit  is  production,  but  English  production,  the  work  of  the 
brains,  mind,  and  skill  of  English  inventors,  whence  we  again 
demonstrate  that  such  men  do  indeed  enrich  the  whole  world. 
If  every  locomotive  or  other  machine  exported  bore  a  plate 
stating  the  names  of  its  inventors  and  designers,  the  Indians 
might  be  more  appreciative  of  the  true  source  of  the  improve- 
ment in  their  conditions  wrought  by  foreign  control.  Since, 
however,  we  ourselves  do  not  recognize  the  source  of  our 
well-being,  we  can  hardly  expect  less  advanced  peoples  to  do 
so.  Memorials  in  every  land. to  the  real  wealth-producers  of 
the  world  could  but  promote  civilization  and  concord. 

We  would  remind  the  reader  that  we  prefaced  our  argument 
by  the  statement  that  the  intrinsic  value  received  by  both 
parties  was  to  be  equal,  whence  it  is  clear  that  the  wealth- 
increase  attributed  to  trade  belongs  verily  to  production. 
Further,  although  both  parties  can  never  benefit  by  one  and 
the  same  exchange,  everyone  can  be  richer  by  production, 
although  not  to  the  same  extent,  for  so  long  as  the  intrinsic 
value  produced  per  Indian  worker  is  higher  than  that  con- 
sumed by  him  during  the  operation,  India  increases  its  avail- 
able wealth  also. 

Thus  every  nation  can  get  rich  through  production,  but 
only  becomes  richer  through  exchanging  products  with  foreign 
countries  when  it  improves  the  quality  of  its  production 
whereby  the  workers  produce  a  greater  value  per  head  for 
export  than  they  would  have  done  for  home  trade. 

It  is  now  clear  how  Britain  amassed  wealth  by  trade  with 
India  and  the  rest  of  the  world  at  the  commencement  of  the 
industrial  era  in  the  nineteenth  century.  Britain  was  not 

176 


INTERNATIONAL    TRADE 

necessarily  the  greatest  producing  nation,  but  the  one  with 
the  most  skilled  workers,  and  therefore  with  industries  of 
the  highest  quality.  And  why  was  this  so  ?  Because  the 
economics  of  an  island  are  different  from  those  of  continental 
countries  ?  No,  but  because  Britain  bred  inventors  and, 
being  free  from  invasion,  and  her  wars  being  fought  in  other 
lands,  she  was  able  to  develop  her  inventions  on  an  adequate 
scale,  and  thus  become  not  only  a  great  industrial  nation, 
but  the  only  highly  developed  one,  a  condition  which  con- 
tinued down  to  about  1880,  when  the  United  States  and 
Germany  were  becoming  formidable  competitors. 

In  these  arguments  we  have  considered  necessaries  of  life 
or  labour-saving  devices,  but  the  principle  is  identical  if  an 
exchange  of  luxuries  be  in  question,  for  in  every  case  that 
nation  benefits  which  uses  up  least  labour-hours  to  produce 
a  given  exchange  value,  and  thus  gains  leisure,  or  the  power 
to  produce  more  wealth  at  each  transaction.  Moreover, 
unless  one  nation  be  exploiting  the  other,  it  is  the  quality  of 
its  production  which  permits  it  to  benefit  by  its  foreign  trade. 

The  idea  is  thus  exploded  that  a  nation  can  produce  a 
surplus  of  any  commodity  as  a  speculation  and  sell  it 
advantageously  abroad,  for  nations  do  not  usually  export 
rubbish  or  things  they  cannot  use  for  themselves,  and  if 
they  do,  they  had  far  better  produce  goods  of  high  value  for 
themselves. 

Of  course,  if  less  advanced  peoples  prize  rubbish,  a  more 
civilized  nation  may  take  advantage  of  their  foolishness,  but 
its  benefit  is  only  obtained  at  the  expense  of  others.  For 
instance,  an  exchange  of  bad  gin  for  oil  or  ivory  not  only 
benefits  the  producers  of  the  first  but  actually  harms  the 
receivers  of  the  second. 

We  have  here  merely  applied  to  international  trade  the 
principles  which  decide  the  national  value  of  industries  (see 
Chapter  X),  and  further,  just  as  one  nation  can  only  increase 
its  wealth-production  by  an  improvement  in  the  quality  of  its 
industries,  save  at  the  expense  of  other  nations,  so  can  the 
wealth-production  of  the  whole  world  only  increase  pari  passu 
with  a  general  improvement  in  quality  or  efficiency. 

177 


THE  REAL  WEALTH  OF  NATIONS 

But — and  a  very  big  but — this  increased  production  must 
not  be  obtained  by  working  longer  hours,  nor  by  working  day 
and  night,  for  both  are  anti-social  and  anti-economic,  but  by 
the  use  of  skill,  brains,  or  mind,  whereby  the  value  produced 
in  the  same,  or  even  less,  number  of  labour-hours  is  increased. 
It  is  true  that  night  work  is  essential  nowadays  for  con- 
tinuous industrial  processes,  but  the  suggestion  that  this 
practice  should  be  extended  in  order  to  increase  the  value  of 
our  exports  ignores  the  fact  that  the  same  result  could  be 
obtained  without  night  work  by  the  transfer  of  labour  from 
less-  to  more-skilled  industries.  For  instance,  it  is  better  to 
design,  make,  and  export  soap-making  machines  than  soap, 
and  we  know  that  a  country  loses  by  exporting  the  products 
of  unskilled  labour  in  exchange  for  more-skilled,  or  more  for 
less  labour-hours. 

Soap  is  a  necessary  of  life,  and  it  is  an  example  of  our  eco- 
nomic chaos  that  a  few  individuals  should  be  allowed  a  mono- 
poly and  to  charge  such  a  high  price  that,  in  addition  to  huge 
profits  for  the  shareholders,  the  workers,  quite  unskilled,  can  be 
better  treated  than  those  equally  deserving  in  other  even  more 
skilled  if  less  fortunate  industries.  It  is,  in  truth,  the  money  of 
millions  of  other  toilers  that  pays  for  the  garden  cities  that 
have  been  built  by  certain  'captains  of  industry,'  and  it  gives 
one  furiously  to  think  that  it  is  usually  employers  of  un- 
skilled labour  who  are  rich  enough  to  pose  as  philanthropists. 

We  stated  generally  that  goods  are  paid  for  by  goods, 
yet  we  have  seen  that  the  exchange  is  really  labour  for  labour, 
and  that  the  quality  of  labour  exchanged  is  the  crucial  question, 
whence  that  hidden  plague,  the  exchange  of  goods  for  services, 
is  now  exposed  in  all  its  degradation.  What  lower  form  of 
labour  can  we  find  than  services,  from  that  of  errand-boys 
upward,  which  must  and  will  always  be  less  well  remunerated 
than  skilled  labour  ?  The  working  conditions  of  sailors,  dock 
labourers,  and  shipping  and  insurance  clerks  represent  a  con- 
dition of  economic  slavery.  When  there  was  more  danger 
and  less  traffic,  higher  prices  were  justified  for  transport,  and 
when  steamships  were  first  introduced  England  built  them 
and  manned  them,  and  other  nations  were  prepared  to  pay 


INTERNATIONAL    TRADE 

for  speed,  and  so  she  had  a  practical  monopoly.  But  to-day 
shipping,  not  ship-building,  is  the  refuge  of  the  unskilled 
labour  of  all  nations,  and  those  who  advocate  a  large  mercantile 
marine  on  the  ground  of  national  security  are  either  ignorant 
or  actuated  by  self-interest,  or  unbelievers  in  the  League  of 
Nations.  If,  indeed,  we  must  insure  against  a  war,  let  us  pay 
our  sailors  as  for  insurance,  and  realize  that  in  manning  mer- 
chant ships  we  are  in  effect  running  munition  factories  in 
peace-time,  and  not  supporting  an  economic  industry.  If, 
however,  we  believe  in  the  prevention  of  war,  let  other  nations 
carry  at  least  their  own  goods.  America  realized  long  ago 
the  economic  superiority  of  the  skilled  producer,  as  compared 
with  the  unskilled  carrier. 

We  have  discussed  the  exchange  of  goods  for  goods,  and 
also  for  services,  but  there  is  apparently  another  variation  in 
the  exchange  of  goods  for  capital.  Capital  produced  by 
man's  efforts  is,  however,  indistinguishable  from  goods,  save 
that  it  is  the  result  of  past  and  not  contemporary  labour,  and 
the  same  is  true  of  capital  provided  by  Nature  in  the  first 
instance,  yet  replaceable  by  man,  as  forests.  There  remains, 
therefore,  only  our  old  friend  '  irreplaceable  raw  material ' 
to  be  considered,  and  we  will  examine  the  most  important, 
namely,  coal. 

If,  as  some  economists  maintain,  coal  has  no  value  where 
it  lies,  and  only  acquires  it  through  the  labour  of  miners  and 
transport  workers,  there  is  only  this  labour  to  be  considered 
in  its  price  or  exchange  value.  Thus,  bearing  in  mind  that 
the  miner  deserves  extra  pay,  or  dirty  money,  which  is  not 
part  of  the  wealth-wage,  in  an  exchange  of  British  coal  for 
South  American  wheat,  it  is  merely  a  question  of  labour  in 
exchange  for  labour  (both  of  approximately  equal  skill),  so 
that  the  labour  of  1000  British  miners  may  correspond  to 
that  of  IOOO  agricultural  workers  in  South  America.  There 
is  thus  apparently  nothing  much  in  it,  the  labour  being  about 
equal,  Britain  obtaining  food  and  South  America  coal,  and  it 
does  not,  of  course,  matter  whether  the  coal  goes  directly  to 
South  America  or  elsewhere.  But  there  is  something  in  it  to 
those  who  are  not  afraid  of  the  truth,  for  the  South  Americans 

179 


THE  REAL  WEALTH  OF  NATIONS 

can  grow  wheat  or  other  produce  again  and  again  on  the  same 
land  and  for  ever  with  Nature's  assistance,  whereas  Britain 
can  never  replace  her  coal,  which  is  the  gift  of  Nature  unaided 
by  man. 

Britain  has  therefore  lost  her  coal ;  yes,  lost  it,  or  given 
it  away.  But  why  worry  ?  The  economists  say  it  has  no 
value  !  But  neither  have  our  winter  clothes  in  summer  !  If 
we  asked  a  man  before  an  empty  hearth  in  winter  whether 
coal  has  value  apart  from  the  labour  expended  in  obtaining 
it  he  would  think  we  were  mocking  him,  not  seeking  after 
knowledge. 

If,  indeed,  as  we  have  found,  coal  has  a  value  in  itself, 
what  ought  we  to  ask  for  it  in  export  ?  The  answer  is  found 
by  testing  its  value  as  used  at  home.  If  one  ton  of  coal  will 
produce,  when  consumed  in  the  most  efficient  manner,  a 
surplus  intrinsic  value  of  a  given  sum,  that  sum  should  be  the 
lowest  export  price  per  ton  of  coal.  If  coal  be  irreplaceable 
and  the  world  is  not  drawing  to  an  early  end,  this  is  irrefutable, 
and  it  is  questionable  whether  a  nation  is  justified  in  exporting 
coal  at  all,  save  in  exchange  for  similar  irreplaceable  raw 
material  of  vital  importance  (i.e.,  not  for  amusement  or 
luxuries).  Although  one  might  say  that  not  to  use  coal  is 
miserly,  to  do  so  unnecessarily  is  the  action  of  a  spendthrift. 

What,  it  may  be  objected,  of  the  poor  miners  thrown  out  of 
work,  with  nothing  whatever  to  do  ?  Well,  the  land  is  calling 
them  and  telling  them  that  they  can  get  their  bread  and  yet 
keep  their  coal  also.  What,  the  reader  may  go  on,  of  a  pam- 
phlet entitled  The  Quality  of  our  Exports,  by  an  author  who 
shall  be  nameless,  which  showed  how  the  export  of  coal  was 
vital  to  Britain's  prosperity  ?  Well,  if  this  terrified  its  readers 
with  a  vision  of  empty  ships  leaving  her  shores,  and  higher 
prices  for  everything,  it  could  only  be  due  to  its  omission  to 
comfort  them  by  showing  that  goods  being  paid  for  by  goods, 
Britain  would  require  fewer  ships,  and,  most  important  of  all, 
would  have,  in  addition  to  more  coal  for  home  consumption, 
more  labour  available  for  the  production  of  wealth,  upon 
which  the  true  prosperity  of  the  nation  depends. 

The  existence  of  a  Coal  Conservation  Committee  is  a  denial 
180 


INTERNATIONAL    TRADE 

of  accepted  economic  doctrines,  and  it  is  indeed  grotesque  to 
find  in  real  life  one  set  of  men  giving  property  away  as  fast 
as  they  can  (of  course  it  is  not  really  their  own  property),  while 
another  set  tell  us,  in  fact  compel  us,  not  to  waste  the  crumbs 
that  fall  from  the  miner's  table. 

THE  BALANCE  OF  EXPORTS  OVER  IMPORTS. — Everyone, 
even  the  most  ignorant,  is  absolutely  certain  that  a  balance  of 
exports  over  imports  in  money  figures  is  a  sign  of  national 
prosperity.  Nevertheless,  we  have  met  one  man  who,  having 
noted  before  the  War  that  Germany  showed  a  reverse  balance 
and  yet  was  prosperous,  had  come  to  a  contrary  conclusion, 
and  if  the  reader  has  penetrated  thus  far  he  too  will  by  now 
have  doubts  on  the  subject.  At  first  sight,  and  as  the  moon 
appears  as  a  source  of  light,  it  does  seem  that  a  balance  of 
exports  over  imports  must  represent  profit,  yet  any  accountant 
would  shudder  were  it  suggested  to  him  that  a  firm's  net 
income  was  the  difference  between  the  totals  of  its  sales  and 
its  purchases  and  especially  between  parts  of  them  only,  and 
he  would  call  for  the  whole  of  the  sales,  the  whole  of  the  costs, 
and  the  stock. 

Now  the  cost  of  our  exports  is  not  our  imports,  and  might 
even  be  far  in  excess  of  their  value  ;  in  fact,  it  has  nothing 
whatever  to  do  with  them,  for  the  imports  are  not  necessarily 
used  to  produce  these  exports,  the  whole  cost  of  which,  as  of 
our  total  production,  is  the  necessaries  of  life  of  all  the  workers 
engaged  in  such  production,  plus  the  intrinsic  value  of  any 
of  our  irreplaceable  raw  material  destroyed.  Should  part 
of  the  imports  be  used  up  in  the  production  of  exports,  the 
cost  of  this  is,  again,  the  necessaries  of  life  of  those  workers 
who  produced  the  exports  by  which  the  imports  in  question 
were  paid  for. 

Our  total  sales  might  be  enormous  without  any  exports  at 
all,  for  they  include  the  nation's  entire  production,  and  it  is 
indeed  amazing  that  producing  for  home  consumption  should 
be  termed  "  taking  in  one  another's  washing,"  while  producing 
goods  for  other  nations  and  receiving  their  commodities  in 
exchange  should  be  considered  the  royal  road  to  amassing 
wealth.  Of  course  the  truth  is  that  any  surplus  of  goods 

181 


THE  REAL  WEALTH  OF  NATIONS 

beyond  the  nation's  necessaries  represents  wealth,  from  what- 
soever source  it  be  derived. 

An  annual  balance  of  exports  over  imports  shows  that  a 
greater  exchange  value  has  been  sent  out  of  the  country  than 
has  been  received  in  return  during  the  given  year,  that  the 
nation  has  produced,  at  a  certain  cost,  a  surplus  of  certain 
goods  and  might  much  better  have  been  employed  in  making 
something  else  for  its  own  poor,  and  that  the  difference,  in 
goods,  is  owing  to  it ;  yet  that  does  not  prove  that  it  is  richer 
through  its  exports,  any  more  than  the  fact  that  Jones  sells 
more  goods  to  Robinson  in  the  course  of  a  year  than  Robinson 
sells  to  Jones  proves  that  Jones  obtains  a  greater  net  profit 
than  Robinson,  for  the  latter,  obviously,  might  make  a  larger 
profit  on  the  smaller  value  of  his  goods,  a  larger  turnover  being, 
of  course,  no  evidence  of  a  larger  profit. 

Again,  a  balance  of  exports  over  imports  does  not  prove 
that  on  the  whole  a  nation  is  producing  more  than  it  is  con- 
suming, nor  that  it  is  thrifty,  for  it  may  have  consumed  some 
of  its  own  stock.  Thus,  if  Farmer  Brown  (we  cite  a  farmer 
because  he,  like  a  nation,  must  be  a  producer  or  die)  finds 
that  he  has  sold  more  in  a  year  than  he  has  bought,  he  does 
not  jump  to  the  conclusion  that  he  has  made  a  profit,  but 
looks  to  his  stock  ;  if  this  be  depleted  in  comparison  with 
a  former  year,  he  realizes  that  he  may  have  lost  on  the  year 
after  all. 

Likewise,  Mrs  Brown  and  the  little  Browns  may  have  had 
less  to  eat  and  be  in  want  of  new  clothes,  wherefore,  before 
Mr  Brown  can  say  that  he  has  had  a  better  year,  and  we  can 
say  that  the  balance  of  exports  over  imports  means  a  surplus 
production  of  material  wealth,  he  and  we  must  be  sure  that 
we  have  not  drawn  upon  our  capital,  and  that  our  conditions 
of  living  are  not  depreciated.  It  is  essential,  therefore,  to  be 
sure  that  the  workers  have  not  worked  longer  hours  than  was 
necessary  and  that  the  nation  could  not  have  obtained  its 
imports  at  less  labour  cost  had  it  produced  them  itself,  i.e., 
that  it  would  use  up  more  labour-hours  to  make  what  was 
imported  than  it  expended  upon  the  manufacture  of  the  goods 
exported.  If  this  were  not  so  it  is  clear  that  the  nation  would 
182 


INTERNATIONAL    TRADE 

be  better  off  if  it  did  not  exchange  its  products  for  those  of 
other  countries.  We  refer,  of  course,  to  goods  which  could  be 
made  under  advantageous  conditions,  and  are  not  proposing 
to  attempt  what  Nature  forbids. 

It  should  now  be  evident  that  a  nation  with  a  balance  of 
exports  over  imports  may  be  heading  for  disaster,  whereas  one 
with  small  exports  and  large  imports  might  amass  wealth  at 
a  prodigious  rate,  and  that  whether  a  nation  is  or  is  not  bene- 
fiting through  its  foreign  trade  depends  upon  the  nature  of  its 
production  for  export. 

Notwithstanding  the  foregoing,  a  balance  of  exports  over 
imports  for  a  long  term  of  years  does  show  that  the  value  of  a 
nation's  production  sent  abroad  is  greater  than  that  returned, 
and  that,  other  things  being  equal,  the  nation  is  accumulating 
wealth  or  capital,  and  presumably  for  this  reason  everyone 
concludes  that  this  is  the  only  or  most  important  indication 
of  a  nation's  capital  accumulation.  Nevertheless,  any  surplus 
of  production  over  consumption  is  capital,  and  its  value  does 
not  depend  upon  whether  it  is  used  abroad  or  at  home,  but 
upon  the  income  derivable  from  it. 

We  saw  in  Chapter  VI  how,  in  an  isolated  community, 
capital  could  be  used  to  produce  more  wealth,  and  to  a  variable 
extent,  or  merely  in  handling  it ;  it  remains  to  be  proved  that 
capital  invested  abroad  yields  the  nation  a  better  return  than 
if  utilized  at  home.  The  capitalist  will  naturally  accept  the 
best  offer  for  it,  or  the  highest  interest,  and  if  a  foreigner  offer 
this,  the  capital  goes  abroad  and  the  City  rings  with  the 
praises  of  foreign  investments.  But  we  know  that  interest 
is  only  one  result  of  the  use  of  capital,  and  the  least  important, 
and  that  capital  invested  in  the  most  skilled  productive  indus- 
tries yields  the  largest  increase  in  national  wealth,  of  which 
the  capitalists'  interest  represents  but  a  transfer. 

"But, "says  the  foreign  investor,  "if  I  lend  my  capital 
abroad  the  interest  does  surely  represent  a  wealth-increase," 
and  it  is  true  that  foreign  money  paid  as  interest  ultimately 
comes  back  in  the  shape  of  foreign  goods,  produced  by  foreign 
labour,  which  will  reduce  the  balance  of  exports  over  imports. 
We  do  not  imply  that  foreign  investments  are  necessarily  bad 

183 


THE  REAL  WEALTH  OF  NATIONS 

for  the  nation,  but  only  that  they  are  governed  by  the  same 
laws  as  the  home  investment  of  capital.  Capital  is  wanted  at 
home  for  improvement  in  production,  and  if  properly  em- 
ployed it  will  increase  the  nation's  wealth  to  a  far  greater 
extent  than  if  invested  abroad,  unless,  indeed,  the  foreign 
workman  can  be  induced  to  surrender  all  that  he  produces 
beyond  his  bare  necessaries  of  life. 

We  have  heard  it  argued  that  home  capital  lent  abroad 
ought  to  be  used  by  the  borrowers  for  purchasing  goods  in 
the  home  country,  but  obviously  it  must  be  ultimately,  whether 
by  the  immediate  debtors  or  other  parties.  For  instance,  if 
we  lend  money  to  South  America  and  she  buys  goods  with  it 
in  Germany,  the  Germans  accept  our  money  because  they 
know  they  can  buy  our  goods  with  it.  Thus,  the  ultimate 
effect  of  a  foreign  investment  of  capital  is  the  production  of 
goods  for  export  in  the  home  country,  and  the  foreign  capi- 
talist must  consequently  stand  before  the  same  tribunal,  and 
answer  the  same  question,  "  What  goods  and  what  value  have 
you  produced  per  worker  ?  "  If  the  South  Americans  spend 
our  capital  directly  in  purchasing  our  goods,  it  is  the  nature 
of  these  that  decides  whether  we  are  gainers  or  otherwise. 
If  it  be  our  coal  that  is  exported,  the  nation  loses  ;  if  it  be 
the  product  of  our  unskilled  trades,  the  nation  gets  only  the 
bare  cost  of  living.  If,  however,  it  be  products  of  skilled 
labour,  or  articles  of  fashion  with  a  high  exchange  value  due  to 
demand,  that  are  exported,  the  nation  benefits  because  few 
workers  are  required  to  produce  this  value,  and  the  imported 
goods  ultimately  received  should,  if  divided  among  them, 
represent  a  share  of  wealth  for  each  man.  Thus  it  is  the 
quality  of  the  home  industries  which  governs  the  extent  of 
wealth-production  from  capital  investments,  whether  at  home 
or  abroad.  The  nation  that  develops  its  skilled  industries  is 
in  a  position  to  export  the  products  thereof,  and  if  she  lends 
money  abroad  this,  in  the  end,  is  spent  in  purchasing  the 
products  of  her  own  skilled  industries. 

To  most  economists,  however,  all  industries  are  equal,  and 
in  discussing  national  wealth  they  usually  ignore  the  fact  that 
a  growing  balance  of  exports  over  imports  without  shorter 


INTERNATIONAL  TRADE 

working  hours  and  improvements  in  the  workers'  conditions 
of  life  represents  a  reduction  in  well-being,  or  wealth,  and 
that  the  export  of  coal  benefits  people  of  this  generation 
(and  only  few  of  them,  judging  by  the  conditions  of  the  miners, 
seamen,  etc.,  and  the  ever-increasing  cost  of  what  is  reserved 
for  home  use)  at  the  expense  of  those  of  the  next.  The  ways 
of  our  economists  can  only  be  likened  to  a  rake's  progress, 
and  not  even  they  can  reconcile  our  reputed  wealth  with  our 
actual  poverty. 


CHAPTER   XVI 

WHO   BENEFITS   BY  INTERNATIONAL  COMPETITION? 

Ait  is  clear  from  the  preceding  chapter  that  nations 
can  actually  lose  through  foreign  trade,  how  comes  it 
that  never  a  doubt  is  raised,  never  a  question  asked, 
as  to  the  position  in  such  transactions  of  those  most  vitally 
interested,  viz.,  the  producers  of  the  goods  which  are  exported  ? 
The  answer  is  found  in  economic  ignorance,  in  the  failure  to 
distinguish  individual  from  national  wealth,  and  in  the  fact 
that  on  every  export  and  on  every  import,  as  on  every  trading 
transaction,  someone  makes  a  profit.  This  person,  whose 
wealth  is  obvious  to  all,  is  of  course  convinced  of  the  benefit 
of  foreign  trade,  convinced  that  the  balance  of  exports  over 
imports  is  proof  of  national  wealth-production ;  and  he  is  not 
to  blame,  for  why  should  he  indulge  in  introspection,  when 
the  experts  unite  in  praising  his  operations  ? 

The  English  Board  of  Trade,  which  pays  no  attention  to 
the  quality  of  particular  industries,  although  its  attention  has 
been  called  to  the  importance  of  discriminating,  assists  the 
exporter  of  the  products  of  sweated  labour  and  of  coal  equally 
with  other  exporters,  and  although  it  tries  to  hold  an  even 
balance  between  the  producer  of  wealth,  in  which  all  share,  and 
the  handler  of  wealth,  who  benefits  himself  alone,  it  is  more 
strongly  influenced  by  the  latter  for  the  reason  that,  as  an 
importer,  he  poses  as  a  friend  of  the  consumer. 

It  appears  that  the  riches  and  influence  of  those  who 
benefit  by  foreign  trade  have  led  the  community  to  regard 
this  trade  as  a  prime  source  of  wealth,  and  the  true  origin  of 
the  wealth  has  remained  unappreciated.  The  seat  of  govern- 
ment, as  we  have  already  remarked,  is  in  the  city,  where  the 
producer  of  wealth  is  largely  out  of  sight  and  forgotten, 
186 


INTERNATIONAL    COMPETITION 

although  the  city  owes  its  existence  to  the  producer.  We 
will  proceed  to  make  the  acquaintance  of  those,  and  their 
number  is  large,  who  benefit  by  this  foreign  trade  at  the 
expense  of  the  nation. 

Let  us  begin  with  the  producer  who  amasses  a  fortune  by 
foreign  trade  and  brags  about  the  employment  he  gives,  and 
whose  export  prices  are  generally  lower  than  those  current  in 
his  home  trade.  If  so,  the  value  realized  per  worker  producing 
for  export  may  well  be  less  than  that  of  his  daily  necessaries 
of  life,  from  which  it  follows  that  the  average  value  produced 
per  worker  throughout  the  whole  trade  is  reduced  by  this 
export,  with  of  course  his  hope  of  higher  wages.  The  nation 
is  actually  poorer  for  producing  these  goods  for  export  than 
had  it  produced  nothing  at  all,  because  men  live  on  goods  and 
not  on  wages,  and  the  value  of  the  imports  to  be  received  in 
exchange  will  not  be  sufficient  to  support  the  home  producers 
in  decency.  Yet  this  employer  makes  a  profit  and  thinks 
that  he  is  a  benefactor,  although  that  his  workers  continue  to 
exist  is  due  to  the  rest  of  the  nation,  who  pay  higher  prices 
for  their  purchases  that  he  may  export. 

The  employer  of  unskilled  and  badly  paid  labour  thus 
benefits  by  export  at  the  expense  of  his  workers  and  the 
community,  and  the  export  of  such  products  should  be  for- 
bidden— yea,  out  of  his  own  mouth  is  he  condemned,  for 
have  not  Lancashire  employers  declared  that  low  wages  and 
half-timers  are  essential  for  the  export  trade  and  the  prosperity 
of  Lancashire  ? 

The  next  beneficiary  we  shall  visit  will  be  he  who  exports 
the  nation's  irreplaceable  raw  material.  He  calls  his  occu- 
pation an  industry,  and  himself  a  producer,  whereas  he  is  a 
destroyer  and  a  handler  of  Nature's  wealth.  The  miners  and 
colliery  proprietors  steal  the  nation's  coal.  The  former  may 
live  well  on  it,  doing  three  days'  work  and  getting  seven  days' 
pay  for  it,  but  it  is  the  nation's  coal  they  live  upon,  the  nation's 
capital  they  are  destroying.  The  producer  of  pig-iron  uses  up 
coal  and  iron  ore,  which  he  cannot  replace,  and  gives  us  a 
useful  commodity  which  can  be  converted  by  skill  and  brains 
to  yield  a  manifold  wealth-production  per  ton.  On  the  other 

187 


THE  REAL  WEALTH  OF  NATIONS 

hand,  the  exporter  of  pig-iron  robs  the  nation,  and  it  follows 
that  the  export  of  the  nation's  valuable  and  irreplaceable  raw 
material  should  be  forbidden,  unless  for  reasons  of  national 
interest,  except  in  the  shape  of  articles  which  embody  the 
maximum  of  skill  and  brains,  and  therefore  the  maximum  value 
per  ton  of  raw  material  destroyed. 

We  have  now  met  those  who  produce  or  bring  forth  the 
goods  to  be  exported,  and  who  benefit  while  the  nation  loses, 
but  we  are  also  interested  in  the  carriers  and  handlers  of 
commodities  for  export,  who  are  also  out,  quite  naturally  too, 
for  profit. 

The  dock  companies,  the  shipping  companies,  the  export 
and  import  merchants,  the  insurance  companies,  etc.,  each 
and  all  seek  and  obtain  a  profit.  The  greater  our  exports  and 
the  greater  our  imports,  the  more  goods  they  handle  and  the 
greater  their  income,  yet,  as  we  have  seen,  the  volume  of  this 
trade  is  not  the  measure  of  national  welfare.  The  cost  (labour- 
hours)  of  all  this  handling  adds  to  the  national  cost  of  pro- 
duction, and  the  profits  represent  merely  a  transfer  of  wealth. 
Those  handling  exports  and  imports  always  benefit  by  foreign 
trade,  which  thus  explains  their  satisfaction  with  it,  if  it  does 
not  justify  their  delusions,  for  it  is  clear  that  they  can  amass 
wealth  while  the  nation  is  actually  losing  it.  The  truth  is, 
only  the  export  of  the  products  of  brains,  skill,  or  mind  benefits 
the  nation,  and  only  on  the  handling  of  such  goods  is  any 
profit  to  the  exporters  and  the  importers  justified. 

The  fact  that  individuals  or  sections  of  the  population  are 
prosperous  does  not  prove  that  all  is  well  with  the  nation, 
and  the  satisfaction  of  the  importers  and  exporters  of  every 
nation  is  no  proof  that  trade  promotes  amity  between  nations  ; 
that  this  is  widely  believed  is  one  of  the  many  economic 
misconceptions.  We  referred  in  Chapter  XV  to  the  fact  that 
all  competitive  trade  is  war,  and  in  Chapter  XIV  we  showed 
that  each  nation  should  produce  that  for  which  it  is  best  suited, 
or  rather  that  which  will  realize  the  greatest  wealth  for  each 
worker,  so  that  any  interference  with  another  nation's  pro- 
duction is  indeed  an  act  of  war.  Thus,  if  exporters  and  im- 
porters be  satisfied  while  their  fellow-countrymen  suffer  loss 
1*8 


INTERNATIONAL    COMPETITION 

through  their  operations,  their  amity  is  purchased  at  the 
expense  of  enmity  between  the  toiling  producers  and  workers. 
This  is,  in  fact,  the  truth,  and  that  it  is  buried  beneath  a 
mountain  of  falsehood  is  due  to  non-recognition  of  the  real 
wealth-producer,  and  confusion  of  price  with  cost. 

As  an  example,  if  one  thousand  English  unskilled  workers 
receiving  a  bare  living  wage,  or  the  cost,  produce  goods  for 
export  to  the  United  States,  their  employers,  the  English 
exporters,  and  the  American  importers  may  make  a  large 
profit  between  them  on  the  complete  transaction.  The  goods 
may  be  paid  for  by  the  products  of  more  highly  skilled  labour, 
say  of  500  men,  for  the  same  number  of  working  days,  in 
which  case,  with  the  same  percentage  of  profit  to  employers, 
exporters,  and  importers,  there  will  be  a  double  living  wage 
for  the  producers  in  the  United  States,  who  will  consequently 
benefit  in  this  exchange,  not  at  the  expense  of,  employers,  ex- 
porters, and  importers,  but  at  that  of  the  English  unskilled 
workers.  For,  presuming  that  the  imported  American  goods 
could  have  been  produced  in  England — though  less  efficiently 
— by  the  labour,  say,  of  750  men,  these  men  could  share 
between  them  the  living  wage  of  IOOO  workers ;  that  is,  each 
could  have  the  living  wage  plus  an  additional  third.  We 
are  considering  common  industries  where,  given  opportunity, 
it  is  possible  to  train  men  to  produce  a  higher  value,  and  the 
result  of  doing  this,  besides  the  increased  wages  to  750  workers, 
is  that  250  men  become  available  for  production  elsewhere. 

Thus  the  English  workers  are  exploited  in  the  interests  of 
exporters  and  importers,  yet  none  of  the  parties  see  it.  And 
why  ?  Because  it  is  accepted  that  the  export  price  must  be 
low  if  orders  are  to  be  obtained  in  competition,  and,  believing 
it  to  be  vital  to  secure  export  orders,  the  English  exporters 
compel  their  workers,  and  the  workers  consent,  to  produce 
commodities  at  a  higher  national  cost,  i.e.,  at  the  expense  of 
a  greater  quantity  of  necessaries  or  labour-hours. 

And  just  as  exporters  and  importers  benefit  at  the  expense 
of  the  unskilled  workers  when  the  products  of  the  latter  are 
exported,  so  do  they  alone  flourish  at  the  expense  of  the  skilled 
workers  when  products  similar  to  theirs  are  imported  in 

189 


THE   REAL   WEALTH   OF  NATIONS 

exchange.  Yet  the  workman  is  himself  to  blame,  for  he  insists 
on  buying  his  requirements  at  the  cheapest  price,  thus  inciting 
cheap  imports,  and  allowing  the  importer  to  squeeze  the  home 
skilled  worker,  while  at  the  same  time  he  wants  a  high  price 
for  his  own  commodity,  viz.,  labour.  Of  course  the  workmen 
imagine  that  their  employers  decide  the  wages  payable,  yet 
were  they  buying  their  own  product,  they  would  soon  realize 
that  the  import  of  a  cheaper  foreign  competitive  article  must 
reduce  their  own  wages. 

The  home  workers  do  not  benefit  in  the  end  from  this  selfish 
attitude  because  the  import  of  the  competitive  products  of 
foreign  skilled  labour,  even  if  the  prices  be  cheap,  reduces 
the  value  per  worker  at  home,  and  thus  also  the  value  of 
money,  wherefore  that  of  their  wages.  The  position  is,  of 
course,  reversed  when  the  products  of  unskilled  foreign  labour 
are  imported,  and  those  of  more  skilled  labour  are  exported. 
Here,  national  wealth  is  gained  at  every  transaction. 

There  is  still  another  individual  who  amasses  wealth  at 
the  expense  of  the  workers,  viz.,  the  re-exporter.  He  buys 
anywhere  and  sells  to  anyone ;  he  buys,  at  the  lowest  price, 
products  of  sweated  or  skilled  labour  from  any  country,  where- 
with he  undersells  his  own  countrymen  in  foreign  markets,  yet 
he  claims  that  he  brings  money  (his  commission)  into  the 
country.  He  may  point  to  the  fact  that  he  finds  some  work 
for  certain  people,  yet  we  know  that  there  is  always  work  to 
do,  and  that  unemployment  is  just  national  mismanagement ; 
and  what  work,  save  invariably  the  most  unskilled,  i.e.,  that 
of  transport  workers,  which  we  are  better  without  ? 

The  re-exporter  is  far  worse,  economically,  even  than  a 
producer  who  employs  unskilled  labour,  because,  like  all 
middlemen,  he  contributes  to  a  very  small  extent,  as  compared 
with  the  volume  of  commodities  handled  by  him  and  the 
labour  working  for  him,  to  his  country's  taxes,  particularly 
to  the  cost  of  local  government.  He  is  often  a  foreigner,  in 
which  case  the  wealth  which  he  gathers  is  generally  sent 
abroad  to  be  used  to  the  detriment  of  the  workers  of  the 
nation  with  which  his  money  was  made,  and  not  to  promote 
the  purchase  of  products  of  its  skilled  industries,  which,  as 
190 


INTERNATIONAL    COMPETITION 

we  know,  is  the  only  way  in  which  the  nation  can  gain  from 
the  export  of  capital.  In  many  instances,  having  made  his 
fortune,  the  re-exporter  leaves  the  country  to  which  he  is 
indebted,  taking  his  capital  with  him.  The  re-exporter  is 
the  worst  type  of  middleman,  whose  cheques  are  written  in 
the  blood  of  the  workers. 

We  think  that  it  has  been  clearly  shown  that  international 
competition  always  benefits  both  importers  and  exporters — 
and  there  is  one  set  to  the  export  and  another  to  the  import — 
but  that  the  workers  of  both  nations  lose  if  both  be  sweated, 
or  those  of  the  nation  which  exchanges  products  of  less  for 
more  skilled  labour.  It  follows  that  much  of  international 
trade  is  no  less  than  war  between  the  actual  producers  of  each 
nation,  the  exchange  being  only  equitable  when  the  quality  of 
labour  is  equal. 

On  the  other  hand,  in  traffic  with  uncivilized  peoples, 
incapable  by  themselves  of  skilled  production,  the  latter  will 
have  no  real  cause  for  complaint  in  an  exchange  of  unequal 
labour  quality,  because  as  they  cannot  produce  the  goods  they 
are  not  exploited  by  exporters  or  importers.  It  now  appears 
that  the  acceptance  by  a  nation  of  the  products  of  more  skilled 
labour  than  its  own  is  an  admittance  of  a  lower  civilization  and 
standard  of  living. 

Thus,  that  denial  of  a  value  independent  of  demand  which, 
resulting  in  the  acceptance  of  a  law  of  supply  and  demand, 
invites  each  man  to  exact  the  highest  price  attainable  from 
every  other,  regardless  of  the  cost  or  intrinsic  value  offered, 
and  incites  every  man  to  exploit  his  brother,  results  in  the 
delusion  that  all  exchange,  particularly  international  trade, 
is  beneficial  to  mankind,  promotes  amity  between  nations, 
and  is  the  source  of  civilization  ;  whereas  the  truth  is  that  com- 
petitive trade,  by  setting  the  wealth-producers  at  one  another's 
throats  the  world  over,  increases  cost  to  all,  reduces  divisible 
wealth,  and  advantages  only  that  nation  which  has  the  lowest 
appreciation  of  general  well-being  and  sets  the  most  store  by 
material  as  against  moral  welfare.  For  instance,  the  Japanese, 
if  they  developed  their  skilled  industries,  could  undersell  and 
benefit  at  the  expense  of  the  skilled  workers  of  other  lands, 

191 


THE  REAL  WEALTH  OF  NATIONS 

as  could  also  any  more  civilized  nation  which  consented  to  work 
longer  hours  than  its  competitors.  It  is  true  that  the  general 
standard  of  living  in  Japan  will  probably  rise  as  its  material 
wealth  increases,  although,  if  the  latter  remain  in  the  hands 
of  a  few,  the  mass  of  the  people  will  still  be  left  in  an  inferior 
condition ;  yet  in  every  case  a  nation  which  permits  the  import 
of  the  products  of  competitive  skilled  foreign  labour  compels 
its  people  to  accept  unnecessarily  an  inferior  material  or  moral 
standard.  Indeed,  unrestricted  international  competition  pro- 
motes a  scramble  for  individual  wealth,  but  not  universal 
well-being. 

It  is  evident,  therefore,  that  if  we  replace  this  competition 
by  international  co-operation  for  the  production  of  wealth, 
and  control  its  exchange  and  distribution,  we  shall  not  merely 
free  labour  for  further  production,  or  improve  the  conditions 
of  living  of  all  mankind,  but  deliver  labour  from  the  bond- 
age of  the  wealth-handler,  both  national  and  international. 
Nevertheless,  while  every  man  is  educated  to  regard  money 
as  wealth,  one  cannot  blame  the  wealth-handlers  for  their 
unfair  advantages  or  their  delusions,  although  one  millionaire 
importer  has  expressed  the  opinion  that  he  had  no  right  to  his 
wealth  and  that  he  should  not  have  been  allowed  to  amass  it. 


192 


CHAPTER   XVII 

THE  EFFECT  OF  THE  INTRODUCTION  OF  MONEY  ON 
INTERNATIONAL  TRADE 

A  THOUGH  in  the  preceding  chapter  we  referred  to 
price,  by  which  is  generally  understood  the  cost  of  an 
article  in  terms  of  money,  our  arguments  on  the  advan- 
tages reaped  by  the  wealth-handlers  from  foreign  trade  pre- 
sumed a  direct  exchange  of  goods  between  two  countries. 

In  Chapter  VII  we  dealt  with  the  effect  of  the  introduction 
of  money  on  the  relations  between  the  various  classes  of  a 
self-contained  nation.  The  evils  discussed  there  are  accentu- 
ated in  foreign  trade  by  the  additional  complication  of  inter- 
national relationship,  and  this  is  only  natural,  for  if  the  use 
of  money  is  necessitated  by  a  subdivision  of  labour  among 
the  producers  in  one  country,  it  is  even  more  essential  in  the 
international  subdivision  requisite  for  the  exchange  of  goods 
between  nations. 

Further,  a  self-contained  nation  has  only  its  own  tokens 
to  consider,  the  value  of  which  is  decided  by  the  community, 
but  that  of  the  tokens  of  other  nations  is  obviously  beyond 
its  control.  We  are  thus  faced  with  another  problem  in  the 
exchange  of  goods  between  nations,  and  shall  have  to  consider 
exchange  of  money  for  goods. 

We  saw  in  Chapter  XV  that  there  is  an  equitable  exchange 
when  an  equal  number  of  labour-hours  of  equal  skill  are  ex- 
changed between  two  nations,  and  we  will  now  proceed  to 
convert  this  expression  into  terms  of  money. 

Although  we  know  that  in  the  first  instance  the  value  of 
a  number  of  tokens  is  purely  arbitrary,  that  this  value  can  be 
altered  just  as  arbitrarily,  and  that  it  varies  according  to  the 
efficiency  of  production  of  necessaries,  we  shall  first  assume 

193 


THE  REAL  WEALTH  OF  NATIONS 

the  value  of  money  constant  in  both  countries,  and  then  pro- 
ceed to  consider  the  effect  of  variations,  both  artificial  and 
natural. 

Further  to  simplify  the  problem,  we  will  begin  by  supposing 
that  the  producers  in  England  and  the  United  States,  which 
countries  we  will  select  for  our  illustration,  are  both  unskilled, 
and  create  daily  the  necessaries  of  life  of  themselves  (with 
average  family)  and  no  more.  Both  sets  of  producers  work 
the  same  number  of  hours  daily,  because  we  are  supposing  an 
exchange  of  labour  equality,  and,  if  the  English  workers 
receive  T  tokens  and  the  Americans  U  tokens,  both  must 
purchase  their  daily  necessaries  of  life,  N,  which  also  we  will 
presume  to  be  identical  in  each  country.  Thus,  if  the  English 
token  be  the  shilling,  and  the  American  the  cent,  and  T  be 
four  shillings  and  U  be  100  cents,  or  one  dollar,  the  English 
workers  for  ten  weeks'  production  of  necessaries,  worth  70  X  4, 
or  280  shillings,  which  they  sell  to  the  United  States,  should 
receive  70  dollars,  and  can  buy  therewith  70  days'  necessaries 
of  life  in  the  United  States.  Similarly,  the  Americans  would 
be  enabled  to  buy  an  equivalent  amount  of  necessaries  in 
England.  We  have  thus  converted  equality  of  labour  into 
terms  of  money,  and  the  fair  rate  of  exchange  is  70  dollars  for 
280  shillings. 

Before  we  vary  the  rate  of  exchange,  let  us  suppose  N  not 
identical  in  both  countries,  and  10  per  cent,  more  in  America 
because  the  climate  there  is  less  temperate.  The  American 
token  U  must  then  buy  in  the  United  States  ^  of  N.  The 
Englishman  sending  ten  weeks'  production  of  his  necessaries 
to  America,  will  not  now  receive  70  dollars  for  them,  because 
they  are  not  worth  that  to  the  American,  who  needs  70  X  yJ-N 
in  order  to  live  70  days  upon  them.  He  will  therefore  only 
give  yy  of  70  dollars,  and  the  proper  rate  of  exchange  is  no 
longer  100  cents  for  45.  but  90-9  cents.  Alternatively,  let 
us  reverse  the  transaction.  The  American  produces  y^V  a 
day,  for  which  he  receives  100  cents.  He  sends  his  goods 
to  England,  and  will  not  accept  a  rate  of  45.  per  day  for  his 
products,  because  that  would  only  buy  JoN,  which  would 
last  him  only  70  X  yy  days.  His  day's  product  is  also  worth 

194 


MONEY   &   INTERNATIONAL   TRADE 

more  to  the  Englishman,  so  that  for  his  70  dollars'  worth  of 
commodities  he  will  want  280  X  -fg-  shillings,  or  the  rate  of 
exchange  is  4  X  y^-  shillings  per  100  cents. 

It  appears  therefore  in  principle  that  the  harder  the  con- 
ditions of  life,  the  greater  number  of  tokens  ought  to  be 
demanded  from  the  more  fortunate  nations.  Thus  if  English 
necessaries  are  double  those  of  the  Indians,  the  number  of 
rupees  which  should  correspond  to  45.  must  buy  twice  the 
necessaries  of  life  of  an  Indian  in  India,  and  this  is  an  incon- 
trovertible principle.  Were  it  not  so,  at  every  exchange  one 
party  would  benefit  at  the  expense  of  the  other,  the  exchange 
rate  of  money  being  false  and  fraudulent. 

Again,  before  we  vary  the  rate  of  exchange  we  will  see 
whether  our  presumption  that  the  workers  were  unskilled, 
and  equally  so,  has  led  us  to  a  false  conclusion,  and  now  assume, 
therefore,  that  one  of  the  workers,  say  in  the  United  States, 
be  skilled.  He  is  in  this  case,  as  we  know,  entitled  to  more 
goods  than  corresponds  to  the  living  wage,  although  how  much 
more  depends  upon  the  distribution  of  wealth  in  his  country, 
which  is  not  a  concern  of  the  English.  If,  however,  he  sends 
his  products  to  England  he  must  receive  the  number  of 
shillings  for  his  day's  produce  which  enables  him  to  buy  the 
products  of  an  equally  skilled  Englishman,  and  this  number 
must  bear  the  same  relation  to  45.,  the  wage  of  the  most 
unskilled  Englishman,  that  his  rate  in  America  bears  to 
100  cents.  Once  more  this  is  incontrovertible,  for  otherwise 
the  skilled  American  would  be  better  off  producing  only  for 
his  own  market,  and  should  cease  to  export  his  products  to 
England. 

Of  course,  if  the  skilled  workmen  in  the  United  States 
were  more  altruistic  than  those  in  England,  and  allowed 
the  unskilled  worker  in  America  to  have  a  larger  share  of  the 
wealth  produced,  they  would  also  be  satisfied  with  less  in 
England,  which  would  invite  the  English  to  take  advantage 
of  their  altruism.  On  the  other  hand,  the  American  unskilled 
workers,  being  used  to  a  larger  share,  would  want  more  for 
their  exports  to  England  than  corresponds  to  the  living  wage 
in  England.  If  they  did  not  obtain  more  they  also  would  be 


THE  REAL  WEALTH  OF  NATIONS 

better  off  in  producing  for  their  own  market,  and  consequently 
if  England  wanted  their  products  she  would  pay  the  price. 
It  is  clear  that  the  rate  of  exchange  between  the  two  countries, 
as  we  have  seen,  is  dominated  by  the  number  of  tokens  which 
purchase  the  daily  necessaries  of  life  in  both  countries,  although 
the  amount  of  the  wealth-wage  receivable  by  the  workers 
for  export  is  affected  by  the  wealth-distribution  in  each  country, 
as  indeed  is  that  yielded  from  a  country's  home  production. 

Although  we  have  recognized  that  unless  the  rate  of  money- 
exchange  corresponds  with  the  value  produced,  the  American 
workers  might  be  better  off  producing  for  themselves,  it  was 
shown  in  the  preceding  chapter  that  their  wishes  are  not  con- 
sulted, that  lower  prices  are  actually  offered  to  exporters  than 
to  home  distributors,  with  the  effect  that  the  average  wealth 
divisible  among  the  workers  is  reduced.  In  short,  the  exporters 
and  importers  benefit  by  every  transaction  regardless  of  the 
interests  of  their  own  wealth-producers. 

That  this  economic  iniquity  is  permitted  is  due,  among 
other  causes,  to  the  fact  that  the  workers  have  an  eye  on  the 
profits  of  their  employers,  and  are  pleased  when  they  see  that 
these  are  reduced.  They  have  not  realized  that  the  employers 
are,  and  must  necessarily  be,  their  partners,  nor  that  a  lower 
average  profit  reacts  upon  wages. 

The  anti-dumping  laws  of,  say,  Canada,  which  require 
the  British  exporter  to  show  that  the  selling-price  in  his  country 
is  not  more  than  his  export  price,  although  framed  in  the 
interests  of  Canada,  and  strongly  resented  by  British  exporters, 
in  reality  protect  British  workmen,  who  do  not,  however, 
recognize  this,  from  exploitation  by  international  middlemen  ; 
in  fact,  these  laws,  we  think  unintentionally,  express  the  truth 
disclosed  in  the  last  chapter,  that  competitive  international 
trade  is  a  war  carried  on  at  the  expense,  and  behind  the  backs, 
of  the  ignorant  producers  of  all  countries. 

Although  it  is  reasonable  to  hold  that  with  an  unfair  rate 
of  exchange  the  American  skilled  producer  should  not  send  his 
goods  to  England,  it  is  nevertheless  true  that  it  is  better  in 
all  cases  to  export  the  products  of  skilled  rather  than  unskilled 
labour,  save  for  temporary  price  fluctuations  particularly 
196 


MONEY   &>   INTERNATIONAL  TRADE 

noticeable  with  regard  to  articles  of  luxury,  because,  whatever 
the  rate  of  money-exchange,  the  price  received  per  worker  is 
higher,  and  even  a  higher  relative  wage  for  the  unskilled  worker, 
which  we  assumed  in  America,  due  to  a  different  distribution, 
is  primarily  rendered  possible,  as  we  know  from  a  study  of 
national  economics,  by  the  development  of  skilled,  or  high- 
value-producing  industries. 

Having  revealed  the  principles  upon  which  the  rate  of 
money-exchange  between  nations  should  be  decided,  we  must 
now  consider  the  effect  upon  international  trade  of  any  devia- 
tion therefrom.  This  can  be  brought  about  both  artificially 
and  naturally,  for  everyone  knows  that  the  rate  of  exchange 
constantly  alters,  and  that  such  variations  are  not  necessarily 
the  effect  of  changes  in  the  real  value  of  money,  but  usually 
of  other  considerations,  for  instance,  credit.  If  two  men 
transact  any  sort  of  business  together  they  must  trust  one 
another.  If  you,  the  reader  of  my  book,  buy  anything,  except 
by  payment  of  cash  on  the  spot  (even  then  in  99  cases  out  100 
you  trust  the  seller  for  the  quality  of  his  goods),  the  seller  of 
the  article  either  trusts  that  you  will  pay  him,  or  if  not,  you 
send  him  money  and  trust  that  you  will  receive  your  purchase. 
Now,  if  the  seller  has  doubts  about  you  he  will  put  up  his  price 
(sometimes  he  offers  you  5  per  cent,  for  cash,  which  proves 
that  his  price  is  in  the  first  place  higher  than  it  need  be),  and  the 
advance  will  depend  upon  the  extent  of  his  lack  of  confidence. 
The  extra  price  is  an  insurance  against  loss,  the  sum  of  the 
seller's  advances  balancing  his  occasional  bad  debts.  This 
is  the  principle  on  which  money-lenders  work,  as  can  be  seen 
from  the  reports  of  frequent  cases  in  the  law-courts. 

Bankers,  apparently,  still  proceed  on  similar  lines,  and,  of 
course,  originally  they  were  only  money-lenders.  In  the  olden 
days  they  had  some  justification  for  their  procedure,  because 
people  frequently  repudiated  their  debts — yes,  even  nations, 
as  the  semi-civilized  peoples  do  to  this  very  day.  It  was, 
indeed,  not  easy  to  compel  payment,  and  it  is  equally  dangerous 
to-day  to  allow  credit  to  a  man  of  no  reputation,  or  writh  nothing 
to  lose,  because  usually  such  a  man  does  not  greatly  care 
whether  anyone  trades  with  him  in  future  or  not. 

197 


THE  REAL  WEALTH  OF  NATIONS 

To-day,  in  spite  of  the  growth  of  international  intercourse, 
bankers  act  in  the  same  high-handed  way.  If  there  be  a 
balance  owing  by  one  country  to  another,  the  banker.*,  who 
apparently  control  international  exchange,  say  to  the  former, 
"No!  we  will  not  advance  you  more  money  except  at  an 
enhanced  rate."  In  so  saying  they  practically  impugn  the 
credit  of  the  debtor  country,  regardless  of  its  admitted 
honesty,  and  of  the  fact  that  as  every  country  that  produces 
more  than  it  consumes,  or  need  consume,  is  able  to  devote 
the  whole  of  this  difference  to  paying  its  debts,  no  nation  that 
works  and  wishes  to  pay  its  debt  can,  unless  for  cataclysms 
such  as  earthquakes,  etc.,  become  insolvent. 

This  variation  in  international  terms  of  credit,  therefore, 
is  nothing  less  than  an  outrage  on  civilization,  and  no  country, 
or  its  bankers,  is  justified  in  refusing  to  give  credit  or  advance 
money  to  another,  providing  that  money  is  going  to  be  used 
for  the  benefit  of  the  lending  country,  i.e.,  to  purchase  for  others 
the  products  of  its  skilled  labour.  It  may  be  noted,  in  passing, 
that  this  condition  does  not  appear  to  be  taken  into  considera- 
tion by  bankers,  who  will  cheerfully  lend  money,  albeit  un- 
consciously, to  their  country's  detriment,  i.e.,  to  finance  skilled 
industries  of  other  lands. 

Justification  of  our  charge  against  bankers  is  to  be  found 
in  a  speech  at  Manchester  in  April  1919  by  Lord  Milner,  who 
said  :  "  The  only  thing  which  terrifies  me  is  the  possibility  of 
a  restriction  of  credit,"  and  his  fear  provided  the  text  of  a 
similarly  gloomy  leading  article  in  a  daily  paper  with  a  circu- 
lation of  over  a  million  copies  daily. 

Nevertheless,  the  creation  of  wealth,  or  production,  is  not 
dependent  upon  credit,  which  merely  facilitates  exchange,  but 
upon  the  possession  of  goods,  or  capital,  which  every  civilized 
nation  has  in  some  form  or  other.  Should,  indeed,  credit  be 
refused  to  any  nation,  it  might  suffer  for  a  season,  yet,  if  it 
set  to  work  and  produced  more  than  it  consumed,  prosperity 
must  return,  and  perhaps  bring  with  it  revenge.  Many  of 
the  world's  most  successful  men,  starting  with  nothing,  made 
their  fortune  without  having  borrowed  one  halfpenny,  and 
credit  is  not  more  essential  to  a  nation. 
198 


MONEY    &   INTERNATIONAL   TRADE 

Ignorance  of  the  laws  which  govern  finance  explain  the 
widespread  delusion  that  the  withdrawal  of  national  credit  is 
natural,  inevitable,  or  permissible,  and  this  delusion  enables 
the  bankers  arbitrarily  to  withhold  money,  which  is  not  theirs, 
and  the  value  of  which  they  do  not  create,  and  gives  them 
power  artificially  and  unnecessarily  .to  alter  the  rate  of  exchange 
between  countries. 

Let  us  next  consider  the  effect  of  an  artificial  alteration 
in  the  rate  of  international  exchange  brought  about  by  a 
restriction  of  credit.  A  nation  does  not  as  a  rule  refuse  to 
supply  another  with  goods,  but  alters  its  rate  of  exchange, 
thus  forcing  its  customer  to  pay  a  higher  price — that  is,  to  hand 
over  more  of  its  own  commodities  in  exchange.  It  is  indeed 
curious  that  enormous  variations  are  permitted  in  the  exchange 
value  of  money  regardless  of  the  disposition  of  commodities, 
which  alone  give  money  its  real,  or  token,  value,  and  that 
fortunes  are  more  rapidly  made  (and  of  course  lost)  on  the 
money  market  than  on  any  market  for  goods. 

On  page  194  we  assumed  that  the  cost  of  a  day's  necessaries 
of  life  in  the  United  States  was  100  cents  and  in  England 
4s. ,  and  that  the  rate  of  exchange  corresponded  thereto, 
and  we  will  now  suppose  that  English  purchases  from  the 
United  States  largely  exceed  those  of  America  from  England. 
England  is  thus  called  upon  to  pay  a  large  sum  of  money,  and 
when  she  has  exhausted  any  reserves  of  American  money  in 
her  possession  she  offers  English  money  or  bills,  both  merely 
promises  to  pay  in  English  goods.  Now,  England  possesses 
a  proud  record  for  commercial  honesty,  yet  the  American 
financiers  seize  the  opportunity  and  declare  that  the  dollar  in- 
stead of  being  worth  45.  is  now  worth  55.,  or  more.  Of  course, 
were  there  another  source  of  supply,  which,  however,  there  may 
not  always  be,  England  would  avail  herself  of  it.  But  this  is  not 
what  America  wants  ;  she  is  not  really  doubtful  as  to  England's 
honesty  or  ability  to  redeem  her  promises,  but  she  seizes,  and 
justifiably  according  to  current  ideas,  the  opportunity  to 
profiteer.  In  consequence,  America  obtains  a  large  sum  of 
English  money,  for  which  she  has  only  given  four-fifths  of  the 
proper  value  in  goods,  or  for  which,  in  buying  from  England 

199 


THE  REAL  WEALTH  OF  NATIONS 

later,  she  will  obtain  a  greater  quantity  of  commodities  than 
she  has  given. 

If  now  the  United  States  buys  from  England  and  the  latter 
ceases  to  buy,  it  does  not  necessarily  follow  that  the  rate  of  ex- 
change will  be  altered,  because  America  is  not  compelled  to  buy 
from  England  ;  she  will  only  do  so  if  prices  are  cheap,  which 
is  ensured  by  the  existing  rate  of  exchange.  Further,  America 
can  pay  in  dollars,  and  hoard  English  money  against  the  day 
when  the  exchange  is  altered,  when  this  money  will  buy  back 
more  dollars,  whence  it  would  appear  that  England  should 
now  only  accept  payment  in  English  money. 

We  have  obviously  been  considering  conditions  which  have 
become  familiar  to  us  since  the  War,  but  this  does  not  weaken 
the  example,  which  shows  how  fluctuations  in  the  exchange 
arise,  and  which  reveals  the  hollowness  of  the  pretence  that 
they  are  necessary  to  redress  the  balance  of  trade. 

THE  BALANCE  OF  TRADE. — If  America  has  sold  a  greater 
quantity  of  goods  to  England  than  vice  versa,  England  has 
the  goods  and  America  has  the  English  money,  for  which 
sooner  or  later  goods  must  be  supplied.  Of  course,  if  England 
possesses  American  money,  the  balance  from  previous  trans- 
actions, she  can  exchange  the  dollars  for  sterling,  and  thus 
cancel  her  obligation  to  pay  in  goods,  and  if,  while  England 
holds  American  money  to  the  full  value  of  her  indebtedness, 
the  United  States  alters  the  rate  of  exchange  against  England, 
it  will  not  affect  the  latter  because  she  will  be  advantaged 
through  the  dollars  she  holds.  If,  however,  England  has  no 
American  money,  or  holds  less  of  it  than  the  United  States 
possesses  of  sterling,  England  must  suffer  if  the  rate  of  exchange 
be  raised.  America's  excuse  for  such  action  is  that  the  balance 
of  trade  must  be  redressed.  The  effect  is  to  discourage  Eng- 
land from  buying  because  goods  cost  more,  and  to  encourage 
Americans  to  buy  from  England  because  English  goods  cost 
relatively  less  according  to  the  rate  of  exchange. 

Obviously  England  will  only  pay  higher  prices  if  she  must, 
and  bankers  will  only  alter  the  rate  of  exchange  if  they  believe 
that  a  foreign  country  has  no  alternative  markets,  i.e.,  if  they 
believe  that  there  is  an  opportunity  for  profiteering. 
2OO 


MONEY   6?   INTERNATIONAL   TRADE 

But  there  is  no  real  justification  for  all  this,  nor,  if  a  nation 
wants  another's  products,  is  there  reason  why  it  should  not 
pay  the  proper  price  for  them.  America  knows  that  in  ex- 
porting to  England  she  must  ultimately  take  English  goods 
in  exchange,  either  directly,  or  indirectly  via  another  nation 
(as,  for  example,  when  she  buys  from  Germany  and  Germany 
buys  from  England),  for  goods  are  paid  for  by  goods,  and 
the  quality  of  the  goods  received  decides  the  nation's  wealth 
increment  through  exchange.  This  last  consideration  suggests 
that  one  country  should  not  only  be  prepared  to  exchange  its 
products,  but  to  give  equal  labour  quality  ;  if  it  has  bought 
the  products  of  skilled  labour,  to  redress  the  balance  by 
exporting  those  of  unskilled  labour  is  to  sustain  a  further  loss 
on  the  exchange.  Should  a  nation  buy  the  products  of  skilled 
labour,  and  be  therefore  a  good  customer,  it  is  strange  that 
prices  should  be  advanced  against  it,  for  in  ordinary  business 
transactions  it  is  not  usual  to  increase  prices  as  more  goods 
are  sold  to  a  customer,  but  rather  to  favour  him. 

If  the  rate  of  exchange  were  kept  constant  and  the  United 
States  did  not  want  to  keep  English  money,  there  would  be 
nothing  to  prevent  her  buying  from  England  and  thus  re- 
deeming the  value  of  her  exports.  Doubtless  international  trade 
would  be  discouraged  thereby,  for  obviously  a  higher  rate  of 
exchange  in  her  favour  encourages  America  to  buy  back  from 
England,  but  we  know  that  such  trade,  when  unnecessary, 
benefits  only  the  middlemen  and  financiers  at  the  expense  of 
the  mass  of  wealth-producers.  Nevertheless,  until  the  latter 
realize  that  they  are  exploited,  awaken  to  their  power  and 
true  interests,  and  insist  upon  a  fixed  rate  of  exchange  corre- 
sponding to  the  real  value  of  money,  this  variation,  together 
with  much  superfluous  international  trade  and  competition,  is 
likely  to  continue. 

We  have  assumed  above  an  internal  currency  of  constant 
value,  and  an  artificial  variation  in  the  rate  of  foreign  exchange, 
but  let  us  now  suppose  that  the  latter  is  constant  whereas  the 
currency  of  one  nation  has  depreciated.  If  100  cents  will  no 
longer  purchase  a  man's  daily  necessaries  of  life  in  the  United 
States  the  rate  of  exchange,  if  unaltered,  again  favours  America, 

201 


THE  REAL  WEALTH  OF  NATIONS 

for  English  money  will  buy  less  there,  and  as  such  a  depre- 
ciation in  the  value  of  internal  currency  is  easily  effected,  e.g., 
by  a  general  advance  in  wages  without  an  increase  in  production, 
the  importance  of  this  point  is  manifest. 

An  alteration  in  the  home  currency  may  be  effected  by 
various  other  causes.  We  saw,  for  instance,  in  Chapter  VII, 
that  the  purchasing  power  of  money  is  increased  by  a  higher 
efficiency  in  the  production  of  necessaries,  whereby,  these 
being  provided  in  a  shorter  time,  the  production  of  a  greater 
supply  of  luxuries,  or  more  leisure,  is  rendered  possible,  so  that 
generally  speaking  an  increased  supply  of  commodities  is  an 
indication  that  the  value  of  money  has  risen.  If,  for  example, 
America  by  the  introduction  of  more  efficient  machinery 
and  better  organization  gradually  increases  the  availability 
of  her  commodities,  the  purchasing  power  of  IOO  cents  will 
rise,  and  an  American  should  demand  a  larger  number  of 
shillings  than  correspond  to  the  rate  of  exchange,  because 
otherwise  he  will  not  receive  a  similar  supply  of  English  goods. 
(The  effect  is  equivalent  to  that  of  a  higher  N  in  the  United 
States,  as  demonstrated  at  the  beginning  of  this  chapter,  and 
naturally  so,  because  that  also  indicates  a  greater  efficiency 
in  the  production  of  necessaries,  providing  of  course  that  they 
are  produced  in  the  same  number  of  hours.) 

It  is  clear,  therefore,  that  unless  the  foreign  rate  of 
exchange  corresponds  to  the  true  value  of  money  in  both 
countries,  both  will  not  be  able  to  buy  a  quantity  of  goods 
which  represents  an  equal  amount  and  quality  of  labour. 
The  power  of  financiers  to  injure  another  country  is 
consequently  enormous,  and  obviously  they  are  in  a  position 
to  exercise  it  when  there  is  a  pressing  need  for  the  products 
of  their  country,  as  in  time  of  war,  when  there  is  great 
temptation  to  take  advantage  of  that  infamous  law  of  supply 
and  demand  which  spells  profiteering.  In  times  of  peace 
their  power  is  not  so  great,  and  profiteering  is  only  possible 
with  monopolies,  wherefore  it  is  again  clear  that  the  principles 
on  which  international  trade  and  competition  are  at  present 
carried  on  are  equivalent  to  war  and  not  to  peace.  The  pro- 
ducers are  but  pawns  in  the  game,  and  are  set  to  fight  one 
202 


MONEY   &?   INTERNATIONAL   TRADE 

another  for  the  benefit  of  exporters  and  importers,  financiers 
and  middlemen. 

THE  RATE  OF  EXCHANGE  AND  INTERNATIONAL  COMPETI- 
TION. — Although  we  stated  that  the  rate  of  exchange  between 
two  countries  ought  to  be  decided  by  the  true  value  of  money 
in  each,  this  would  not  be  of  great  importance  if  the  rate 
were  fixed  and  constant,  for  it  would  then  be  known  that  in 
a  particular  market  a  fair  value  was  not  to  be  anticipated, 
and  only  goods  would  be  purchased  there  that  were  not 
obtainable  elsewhere.  An  increase  in  international  compe- 
tition, the  disadvantages  of  which  have  been  shown,  is  thus 
another  result  of  a  variable  rate  of  exchange,  and  we  will 
consider  a  further  effect. 

If  a  set  of  men  A  in  the  United  States,  and  B  in  Britain, 
be  producing  the  same  article  in  the  same  number  of  labour- 
hours,  and  the  rate  of  exchange  corresponds  to  the  real  value 
of  money,  neither  party  can  undersell  the  other  without 
sacrifice.  But  if  the  rate  of  exchange  be  arbitrarily  altered, 
so  that  three  shillings  instead  of  four  are  now  worth  a  dollar, 
Americans  who  want  dollars  for  their  production  will  accept 
a  smaller  number  of  shillings,  which  amounts  to  underselling 
England,  it  may  be,  even  under  the  English  cost  price,  because 
the  shillings  received  in  payment  will  realize  a  larger  number 
of  dollars.  But  it  can  only  benefit  America  to  export  these 
goods  if  they  be  the  product  of  skilled  labour.  If  otherwise, 
America  would  receive  in  exchange  goods  of  a  less  value  than 
the  necessaries  of  life  of  her  own  workers,  and  England  might 
be  buying  below  her  own  cost — i.e.,  necessaries  of  the  workers — 
and  she  would  be  advantaged  (if  the  detrimental  effect  of  a 
smaller  output  upon  cost  of  production  be  ignored). 

Further,  while  the  American  middlemen  concerned  in 
exporting  goods  to  markets  where  there  is  an  adverse  rate  of 
exchange  are  increasing  their  turnover  and  profit,  they  are 
doing  so  at  the  expense  of  their  fellow-countrymen,  who  will 
receive  less  goods  in  exchange  for  these  exports.  Thus 
whether  or  no  a  nation  benefits  by  underselling  another  depends 
upon  the  quality  of  the  goods  produced,  and  this  equally 
affects  the  other  party  to  the  exchange,  so  that  a  false  rate 

203 


THE  REAL  WEALTH  OF  NATIONS 

of  exchange,  which  encourages  underselling,  conceals  the 
real  result  and  can  in  no  case  be  to  the  advantage  of  both 
parties.  It  is  true  that  an  individual  who  undersells  another 
is  usually  gratified,  but  he  thinks  only  of  his  personal  profit, 
which  may  be  obtained  at  the  expense  of  his  fellows,  as,  for 
instance,  if  he  be  paying  lower  wages  than  his  competitor. 

Of  course  if  America  continue  to  sell — and  more  than 
she  buys — the  rate  of  exchange  may  be  altered  in  her  favour, 
but  frequently  a  nation  is  compelled  to  buy,  as,  for  instance, 
if  it  permits  another  to  produce  for  it  its  whole  requirements 
in  certain  goods,  just  because  the  first  nation  was  best  suited 
therefor,  and  thus  allows  the  creation  of  a  monopoly.  The 
rate  of  exchange  may  therefore  remain  unfavourable  to 
America.  On  the  other  hand,  if  America  were  exporting 
the  products  of  skilled  labour  which  the  English  could 
themselves  produce,  and  was  able  to  undersell  England, 
owing  to  an  artificial  rate  of  exchange,  the  latter  would  not 
benefit,  but  would  lose  by  accepting  these  goods,  for  her  own 
skilled  industry  would  be  demoralized,  and  its  efficiency  of 
production  adversely  affected  by  an  interruption  in  its  output. 

It  is  true  that  some  individuals  in  England  would  gain 
through  a  cheaper  price,  but  this  might  be  trifling  compared 
with  the  national  loss  in  wealth-production.  For  example,  if 
a  foreign  price  were  one  per  cent,  below  that  of  the  home  price 
an  individual  would  have  an  advantage  of  one  per  cent,  in 
purchasing,  but  in  the  home  skilled  industry  affected  the 
workers'  wealth-wage  would  be  lost.  This  loss  would  probably 
be  far  in  excess  of  one  per  cent.,  and  further  loss,  or  increase 
in  cost,  would  attend  the  consequent  smaller  output.  That 
this  is  unrecognized  is  due  to  a  confusion  between  price  and 
cost,  for  whereas  a  cheaper  cost  benefits  the  nation  if  perma- 
nent, a  cheaper  price  may  actually  harm  it.  It  is  once  more 
a  question  of  individual  profit  as  against  national  loss. 

It  appears,  therefore,  that  although  in  an  interchange  ot 
labour  equality  a  rate  of  exchange  unfavourable  to  the  first 
party  will  benefit  the  second  as  regards  the  value  of  the  goods 
it  receives,  the  latter's  advantage  may  be  lost  if  the  first, 
party  exports  the  products  of  the  more  skilled  labour.  Thus 
204 


MONEY   6f   INTERNATIONAL   TRADE 

whatever  the  rate  of  exchange,  a  nation  benefits  if  it  exports 
the  products  of  more  skilled  labour  than  was  used  in  its  imports, 
and  we  shall  deal  with  the  possibility  of  ensuring  this  result 
in  the  following  chapters. 

Before  passing  on,  however,  we  will  recapitulate,  and  we 
make  no  apology  for  so  doing,  because  to  the  average  man 
fluctuations  in  exchange  and  their  consequences  appear 
natural  and  inevitable,  whereas  we  would  insist  that  they  are 
as  artificial  as  civilization  itself. 

Let  us  suppose  that  England  and  America  respectively  are 
proceeding  to  exchange  cotton  goods  for  raw  cotton.  We 
will  assume  that  the  amount  and  quality  of  labour  in  500  Ib. 
of  the  former  are  equal  to  those  in  1000  Ib.  of  the  latter. 
Further,  we  will  arrange  for  the  exchange  to  take  place  in 
mid-Atlantic,  so  that  both  parties  will  pay  an  equal  share  of 
the  cost  of  transport,  although,  alternatively,  whoever  bears 
it  must  allow  for  it  in  fixing  his  price.  Let  the  true  value  of 
money  be  i  dollar  for  45.,  and  the  rate  of  exchange  correspond 
thereto,  when,  assuming  the  price  of  the  commodities  to  be 
240^.,  or  60  dollars,  the  Englishman  upon  receiving  60  dollars 
converts  them  into  shillings,  and  is  neither  better  nor  worse 
off,  and  likewise  the  American  upon  receiving  his  240^., 
exchanges  them  for  60  dollars. 

Now  assume  that  the  rate  of  exchange  does  not  correspond 
to  the  purchasing  power  of  money  in  each  country,  and  is 
equal  to  55.  per  dollar.  The  Englishman  is  satisfied  if  he 
receive  2405.,  so  the  American  buyer  need  only  give  him 
48  dollars,  whereas  the  American  seller  must  demand  300^. 
in  order  to  obtain  his  60  dollars.  Both  sellers  are  content, 
yet  the  result  of  the  transaction  is  that  the  United  States 
has  500  Ib.  of  cotton  goods  and  300  English  shillings,  and 
England  iooo  Ib.  of  raw  cotton  and  48  dollars.  As  this  sum 
will  redeem  only  240  English  shillings  America  has  thus  gained 
60  shillings. 

This  is  clearer  still  if  we  consider  that  one  and  the  same 
party  carries  out  the  deal,  for  an  Englishman  receiving  only 
48  dollars  cannot  buy  with  this  the  IOOO  Ib.  of  raw  cotton, 
but  only  four-fifths  thereof.  Further,  if  the  two  parties  had 

205 


THE  REAL  WEALTH  OF  NATIONS 

directly  exchanged  goods  for  goods,  it  would  have  been  500  Ib. 
for  1000  Ib.  It  is  the  introduction  of  money  and  a  false 
rate  of  exchange  that  has  provided  conditions  which  have 
enabled  America  to  gain  at  the  expense  of  England. 

It  is  evident,  therefore,  that  trade  such  as  we  have  been 
examining  is  carried  on  for  the  benefit  of  individuals  at  the 
expense  of  their  fellow-countrymen,  and  that  the  interests  of 
international  financiers  and  capitalists  are,  in  general,  totally 
opposed  to  those  of  producers,  who  should  be  represented  by 
national  financiers,  for  even  when  one  nation  does  benefit  by 
such  international  trade,  it  is  always  at  the  expense  of  another. 


206 


CHAPTER  XVIII 

THE  IMPORTANCE  OF  MARKETS,  AND 
INTERNATIONAL  COMPETITION 

THE  ambitious  youth  looks  upon  the  world  as  his 
oyster,  and  similarly  the  individual  man  thinks  that 
the  markets  of  the  world  are  his  to  exploit,  as,  also, 
his  fellow-countrymen's.  If  he  be  a  Briton  he  looks  out  from 
his  little  country,  with  its  population  of  some  forty-five  millions, 
upon  the  teeming  millions  of  the  world,  and  exclaims,  "  There 
is  my  market  !  "  The  man  with  a  big  export  trade  is  self- 
satisfied,  and  attributes  his  success  to  his  own  enterprise, 
and  the  failure  of  others  to  lack  of  this  quality.  He  may 
export  huge  quantities  of  goods  per  annum,  and  sees  no  reason 
why  an  infinite  number  of  fortunes  should  not  reward  himself 
and  his  fellow-countrymen.  This  man  thinks  in  terms  of 
money,  and  not  only  so,  but  in  terms  of  his  own  domestic 
currency,  whereas  it  is  foreign  money  that  really  pays  for  his 
goods.  This  is  changed  afterward  into  his  home  currency,  and 
ultimately  foreign  goods  must  come  into  his  country  to  redeem 
the  foreign  money.  This  should  make  him  pause,  but  it  does 
not,  because  he,  in  fact,  cares  only  for  his  own,  and  not  his 
country's  interests. 

Goods  are  paid  for  by  goods,  and  if  for  everything  exported 
something  must  be  imported  to  pay  for  it,  it  would  appear  that 
a  larger  market  cannot,  after  all,  be  secured  through  export. 

Let  us  return  to  our  self-contained  nation  and  see  what 
decides  the  size  of  a  nation's  market  and  how  this  can  be 
enlarged.  If  every  man  produced  everything  he  needed  for 
himself  there  would  be  no  trade,  and  no  necessity  for  a  market. 
The  subdivision  of  labour,  however,  makes  the  exchange  of 
goods  essential.  But  exchange  does  not  affect  output,  for  the 

207 


THE  REAL  WEALTH  OF  NATIONS 

total  trade  cannot  exceed  the  total  production.  Moreover,  as 
re-exchanging  goods  does  not  increase  their  quantity  nor  create 
a  larger  total  market  for  them,  it  is  only  the  first  exchange, 
or  rather  the  direct  exchange,  of  goods  which  matters.  Thus, 
goods  being  paid  for  by  goods,  a  nation's  home  market,  or  its 
purchasing  power,  is  exactly  measured  by  its  own  production, 
and  this  applies  equally  to  its  foreign  markets. 

Although  this  may  sound  revolutionary  to  those  who 
have  been  brought  up  to  believe  that  a  nation's  wealth  is 
dependent  upon  the  exploitation  of  world  markets,  it  does 
not  follow  that  a  nation  cannot  enlarge  its  market,  and,  indeed, 
in  Chapter  XIII  we  showed  that  it  can  increase  its  wealth- 
production,  and  therefore  also  its  total  internal  trade. 
Similarly,  it  is  possible  to  enlarge  its  market  through  foreign 
trade  provided  that  at  the  same  time  there  is  a  larger  total 
production. 

Yet  how  is  this  attainable,  if  for  everything  exported 
something  is  imported  to  pay  for  it,  and  if  an  increased  output 
of  one  producer  is  offset  by  a  reduction  in  that  of  another  ? 
The  answer  is,  By  exchanging  the  labour  of  the  few  for  that 
of  the  many,  the  products  of  more-skilled  for  those  of  less- 
skilled  labour.  We  demonstrated  that  this  can  be  effected  in 
Chapters  X  and  XIII,  where  we  proved  that  by  the  transfer 
of  workers  from  less-  to  more-skilled  industries  a  greater  total 
wealth-production  resulted.  This  applies  equally  to  the 
production  of  goods  for  export,  and  foreign  markets  offer  a 
further  opportunity  to  develop  the  more  highly-skilled  trades. 
The  effect  of  exchanging  the  products  of  skilled  labour  for  the 
less-skilled  of  other  nations,  or  less  labour-hours  for  more,  is 
equivalent  to  an  increase  in  the  home  population,  and  therefore 
in  the  number  of  workers  producing  goods  for  the  exporting 
nation. 

It  is  thus  evident  that  a  nation  can  increase  its  market 
through  foreign  trade,  and  that  the  fact  does  not  contradict  our 
assertion  that  a  nation's  market  is  identical  with  the  volume 
of  its  home  production,  for  the  increase  in  its  market  corre- 
sponds with,  and  is  the  consequence  of,  the  increased  efficiency 
or  improved  quality  of  its  own  industries. 
208 


THE  IMPORTANCE  OF  MARKETS 

The  delusion  that  all  foreign  trade  benefits  a  nation  is  so 
widespread  that  its  origin  is  worth  a  moment's  consideration. 
We  have  often  read  in  history  books  that  nations  have  amassed 
wealth  through  trade,  although  the  historians  have  not  told  us 
how.  It  is  true  that  two  nations  trading  together  can  get 
richer  simultaneously  by  discarding  the  production  of  that 
for  which  each  is  unsuitable  and  thus  improving  the  quality 
of  their  industries.  In  many  cases,  however,  it  is  clear 
that  one  nation  gained  at  the  expense  of  another  because  the 
exchange  was  between  a  civilized  and  an  uncivilized  people. 
Frequently  such  exchange  was  a  form  of  robbery,  the  civilized 
nation  exporting  valueless  rubbish,  and  receiving  goods  of  high 
intrinsic  value  in  return.  We  have  also  read  of  individual 
exporters  and  importers  who  became  rich  through  trade, 
and  we  have  not  paused  to  inquire  whether  they  benefited 
their  nation,  nor  as  to  the  real  source  of  their  wealth. 

Belief  in  the  superior  value  of  foreign  trade  is  due  to 
ignorance,  but  it  is  fostered  by  personal  greed.  If  men  think 
that  riches  are  obtainable  they  hasten  to  realize  them,  as  we 
have  seen  in  the  periodical  rushes  to  seek  gold  or  diamonds. 
There  are  undoubtedly  riches  in  foreign  trade  for  some,  even 
if  the  goods  for  export  are  sold  at  special  low  prices.  The 
manufacturer  or  exporter  who  reduces  his  price  in  the  foreign 
market  in  order  to  obtain  orders  is  not  influenced  by  the 
consideration  that  their  execution  actually  harms  the  nation 
if  the  exchange  be  unskilled  for  more-skilled  labour,  more  for 
less  labour-hours.  It  is  sufficient  for  him  that  he  personally 
can  make  a  profit.  The  plea  that  the  entire  nation  benefits 
from  increased  output  and  reduction  in  cost  of  manufacture 
can  only  be  admitted  if  the  industries  concerned  yield  a  higher 
value  per  worker,  for  since  goods  are  paid  for  by  goods  increased 
output  in  one  industry  is  counterbalanced  by  a  reduction  in  that 
of  another,  and  consequently  solely  the  quality  of  our  output 
may  be  affected  by  the  growth  of  an  industry  through  export. 

Further,  higher  prices  in  the  home  as  compared  with  the 
export  trade  mean  that  the  exporter  receives  from  his  fellow- 
countrymen  more  goods  than  he  is  entitled  to,  some  of  which 
he  then  presents  as  a  bonus  to  the  foreign  buyer.  It  appears, 

209 


THE  REAL  WEALTH  OF  NATIONS 

therefore,  that  a  nation's  interests  demand  higher  prices 
for  export,  and  a  skilled  industry  which,  owing  to  excessive 
foreign  competition,  produces  goods  which  can  command 
only  a  low  exchange  value  abroad  may  be,  for  a  time  at  least, 
of  lower  national  value  for  export  than  an  unskilled  one,  from 
which  there  is  a  shortage  in  output,  or  which  has  less  competi- 
tion. It  should  be  remarked  that  a  civilized  and  educated 
nation  should  be  able  to  choose  its  industries,  for  only  uncivilized 
or  misguided  people  are  compelled  to  submit  to  economic 
slavery. 

In  general,  however,  statistics  would  show  that  skilled 
industries  yield  the  highest  export  prices  per  worker,  and 
that  many  of  the  '  great  unskilled  '  industries  yield  less  than 
a  living  wage  to  the  workers  and  handlers  concerned  in  them, 
whereby  the  standard  of  living  of  the  nation  is  reduced,  for  a 
lower  price  for  export  may  entail  a  higher  average  national 
cost  of  goods  for  home  consumption.  Thus  although  a  nation 
should  benefit  by  the  export  of  the  products  of  skilled  labour, 
reduction  in  their  price  must  detract  from  the  value  to  it  of 
such  industries,  because  in  the  result  it  receives  a  less  quantity 
of  goods  in  exchange,  even  if  the  profits  of  individuals  are 
considerable. 

In  the  middle  years  of  the  nineteenth  century  England 
amassed  enormous  wealth  through  her  foreign  trade,  because 
she  was,  almost  exclusively,  exchanging  the  labour  of  a  com- 
paratively few  for  that  of  a  greater  number  of  workers  of  other 
nations,  and  the  value  of  the  production  of  her  small  popu- 
lation was  enormous  compared  with  that  of  countries  with  a 
much  larger  number  of  inhabitants.  The  English  were,  indeed, 
the  skilled  producers  of  the  world,  the  greatest  industrial 
nation,  thanks  to  freedom  from  invasion  and  a  long  sequence 
of  inventors,  etc.  It  was  the  English  inventors  who  made 
England  wealthy  through  her  foreign  trade,  and  we  now  see 
that  the  idea  that  a  nation  can  become  wealthy  through  its 
foreign  trade  without  regard  to  other  factors,  and  can  always 
increase  the  size  of  its  market  thereby,  must  be  regarded  as  a 
most  dangerous  delusion. 

Nevertheless,  the  importance  of  having  as  large  a  market 
2IO 


THE  IMPORTANCE  OF  MARKETS 

as  possible  cannot  be  exaggerated,  for  neither  production  nor 
any  industry  can  have  stability  without  the  certainty  of  a 
market. 

For  instance,  the  agriculturist  grows  wheat  and  grass, 
breeds  cattle,  sheep,  and  pigs,  keeps  ducks  and  chickens,  partly 
for  his  own  consumption,  but  principally  in  order  to  obtain  a 
surplus  which  he  can  exchange  for  other  commodities  or  for 
money  wherewith  to  purchase  them.  Thus,  although  he  can 
consume  some  of  his  own  production  (and  were  it  indefinitely 
storable  he  could  consume  it  all),  his  inducement  to  produce 
as  much  as  he  can,  and  in  the  shortest  possible  time,  and 
thereby  increase  both  the  nation's  wealth  and  its  hours  of 
leisure,  depends  upon  his  certainty  of  selling  his  output  at  a 
profit. 

Consequently,  the  object  of  a  subdivision  of  labour,  on 
which  the  material  progress  of  mankind  depends,  being  a  greater 
efficiency  in  production,  the  reservation  to  the  producer  of  a 
market,  as  well  for  his  labour  as  for  his  goods — for  they  are 
inseparable — is  essential  to  civilization.  Indeed,  the  producer, 
at  least  of  necessaries  and  labour-saving  devices,  has  an 
obvious  right  to  his  market,  for  our  requirements  of  the  first 
are  known  and  all  benefit  from  an  increased  supply  of  the 
second. 

Further,  it  is  evident  that  efficiency  in  the  production  of 
any  one  article  depends  upon  the  market  for  it,  although  this 
is  only  true  up  to  a  certain  point,  for  while  it  varies  in  every 
industry,  after  a  certain  concentration  is  reached  the  reduction 
in  the  cost  of  production  is  small  and  may  be  far  exceeded  by 
the  additional  cost  of  transport,  etc. 

For  example,  a  hundred  men  could  not  efficiently  build 
locomotives  ;  5000  or  10,000  can  do  so,  yet  20,000  men 
might  not  effect  any  considerable  reduction  in  cost  unless 
their  larger  output  justified  other  methods  of  production, 
only  economical  in  the  case  of  such  a  large  number  of  workers, 
and  even  then  these  methods  would  only  apply  to  certain 
parts.  Generally  speaking  the  number  of  men  who  must 
be  concentrated  to  produce  an  article  efficiently  depends 
upon  the  number  and  size  of  parts,  and  the  difficulty  in  making 

211 


THE  REAL  WEALTH  OF  NATIONS 

them.  A  gas  works  provides  an  example  of  a  limit  soon 
reached,  also  electric  generating  stations,  etc. 

It  is  necessary  to  lay  stress  on  this  point,  because  many 
people  think  that  reduction  in  cost  through  a  larger  output 
must  go  on  indefinitely  and  at  the  same  rate.  The  existence 
of  enormous  industrial  concerns  fosters  this  idea,  but  these 
have  usually  continued  to  expand  because  of  efficient  manage- 
ment, and  the  continued  investment  of  capital  due  either  to 
self-denial  or  to  confidence  in  the  management.  The  larger 
capital  does  not  command  a  higher  dividend.  Sometimes 
expansion  is  due  to  a  certain  selfishness.  A  firm  decides  to 
manufacture  all  of  the  details  that  go  to  make  up  its  speciality, 
instead  of  allowing  other  specialists  to  contribute.  Indeed, 
if  economy  in  production  continued  indefinitely  in  proportion 
to  the  number  of  workers  employed,  small  nations  could  not 
compete  successfully  with  larger  ones,  as  they  do,  unless, 
indeed,  they  were  superior  beings. 

Nevertheless,  a  certain  size  of  market  is  essential  for  efficient 
production  in  every  industry,  and  it  is  obvious  that  the  whole 
world  does  offer  a  larger  market  for  some  commodities,  pro- 
vided that  a  nation  is  prepared  to  accept  a  smaller  market  for 
others,  or,  in  fact,  to  give  up  its  home  market  for  these.  We 
have  seen,  however,  that  in  total  no  nation  can  have  a  larger 
market  than  its  own,  and  under  what  conditions  it  can  gain 
by  export,  and  it  is  clear  that  only  strong  advantages  can 
justify  the  surrendering  of  a  home  market. 

As  an  industry  cannot  exist  efficiently  without  a  market, 
and  as  it  is  undeniable  that  every  nation  has  a  right  to  its 
own  industries  and  economic  development,  it  must  have  a 
right  to  its  home  market,  and  therefore  should  itself  decide 
whether  a  portion  should  be  surrendered  or  not.  A  nation's 
market,  being  exactly  equal  to  its  own  production,  is  not  a 
figment  of  the  imagination,  and  to  lose  it  without  adequate 
compensation  is  to  betray  the  nation's  vital  interests. 

We  found  that  the  benefit  a  nation  derives  through  foreign 
trade  arises  solely  from  exchanging  the  products  of  more 
skilled  labour  for  those  of  less-skilled  workers — that  is,  from 
gaining  a  larger  foreign  market  for  its  skilled  (or  high-value.- 
212 


THE   IMPORTANCE  OF  MARKETS 

producing)  industries.  On  the  other  hand,  as  a  nation  may 
lose  through  obtaining  a  larger  market  for  its  unskilled 
industries,  it  may  well  be  prepared  to  sacrifice  even  its  home 
market  therein  in  return  for  a  larger  market  for  the  products 
of  its  skilled  labour. 

Thus  a  nation  may  gain  by  giving  up  its  own  market  in 
unskilled  industries,  provided  that  it  obtains  in  return  a 
larger  market  for  the  products  of  its  skilled  workers.  This 
policy  might  well  not  coincide  with  the  desires  of  individuals 
who  export  the  products  of  unskilled  labour  or  their  country's 
irreplaceable  raw  material,  but  it  is  nevertheless  essential 
for  the  well-being  of  the  whole  nation,  because  export  trade 
per  se  neither  increases  the  size  of  a  nation's  market  nor  the 
volume  of  its  total  production,  but  merely  affects  the  quality 
thereof. 

It  may  appear  surprising,  at  first  glance,  that  the  purchasing 
power  of  the  whole  world  for  a  nation's  products  does  not 
exceed  its  own,  yet  a  moment's  thought  shows  that  foreign 
money  is  of  no  use  unless  it  be  spent  (and  it  must  be  spent 
abroad),  and  that  if,  therefore,  particular  commodities  be 
needed,  it  is  just  as  remunerative  to  produce  them  for  home 
consumption  as  for  export — in  fact,  it  is  only  from  its  production 
that  a  nation  is  enabled  to  buy,  and  the  total  value  which  it  can 
produce  depends  solely  upon  the  quality  of  its  industries. 

Our  statement  that  the  size  of  a  nation's  market,  or  its 
purchasing  power,  exactly  equals  its  own  production  obviously 
ignores  accumulated  wealth  or  capital.  If  such  capital  be 
due  to  man's  labour  it  is  the  result  of  previous  production, 
and  therefore  whether  or  no  there  be  capital  available  does 
not  affect  the  fact  that  a  nation  can  only  increase  the  size  of 
its  total  market,  as  compared  with  its  home  market,  by  ex- 
porting the  products  of  those  industries  which  yield  the  greatest 
wealth  per  worker. 

It  should  be  noted  also  that  the  effect  of  high-class  exports 
is  cumulative,  for  if  it  enlarges  its  market  in  such  industries 
a  nation  has  the  opportunity  of  increasing  its  efficiency,  and 
therewith  its  power  to  compete.  The  significance  of  this 
fact  is  still  further  emphasized  when  we  remember  that  a 

213 


THE  REAL  WEALTH  OF  NATIONS 

skilled  industry  usually  requires  much  capital,  and  must  there- 
fore be  worked  at  the  highest  possible  intensity. 

We  need  not  discuss  the  larger  market  obtainable  through 
the  export  of  a  nation's  natural  capital,  or  irreplaceable  raw 
material,  save  by  remarking  that  a  man  who  lives  on  his 
capital  is  not  adding  to  his  wealth. 

Of  course  one  may  ignore  the  limitation  of  such  supplies, 
or  argue  airily  that  new  discoveries  are  sure  to  be  made, 
yet  these  might  be  in  other  lands,  when,  our  supplies  being 
exhausted,  we  should  again  be  dependent  upon  other  nations. 
Already,  every  year,  the  recovery  of  coal  becomes  more  costly, 
whence,  considering  the  duration  of  the  industrial  era,  its 
dissipation  is  evidently  unwise,  for  a  nation  which  has  not 
sufficient  motive  force  of  its  own,  be  it  coal,  water,  or  oil, 
cannot  expect  to  remain  in  the  vanguard  of  industrial  progress. 

It  is  clear,  therefore,  that  the  development  of  the  skilled 
industries  of  a  nation  is  of  vital  importance,  not  only  for  its 
wealth-production  as  a  self-contained  nation,  but  for  any 
hope  of  a  larger  production  (unless  indeed  we  propose  to 
lengthen  the  working  day)  through  exchange  with  other 
nations.  Further,  the  material  welfare  of  a  nation,  not  to 
mention  leisure  for  improving  its  moral  qualities,  depends 
upon  education  and  the  application  thereof  to  industry.  It 
will  be  observed  that  if  all  nations  ought  to  concentrate  on 
skilled  industries  obviously  all  will  want  to  export  the  products 
of  them,  in  which  case  international  competition  will  be  more 
severe  in  industries  which  yield  the  greatest  wealth  per  worker. 
This  is  true,  for  just  as  no  one  wants  to  compete  with  a  man 
making  a  loss,  or  only  a  small  profit,  so  a  nation  will  not  want 
to  rob  another  of  those  industries  which  yield  little  more  than 
a  living  wage  to  the  workers  engaged  in  them. 

If  this  be  true,  they  are  indeed  foolish  nations  which 
compete  with  and  export  the  products  of  unskilled  labour, 
and  try  to  persuade  other  nations  to  take  their  irreplaceable 
raw  material.  For  instance,  England  thinks  it  right  and  praise- 
worthy to  compete  with  Indians  in  the  world's  market  for 
cheap  cotton  goods,  instead  of  educating  her  workers  to  under- 
take work  beyond  the  capacity  of  the  Indians.  What  the 

214 


THE  IMPORTANCE  OF  MARKETS 

Indians  can  do  let  them  do,  for  just  as  it  benefits  a  nation 
to  export  the  products  of  its  skilled  workers,  so  is  it  benefited 
by  importing  the  products  of  less-skilled  labour  than  its  own. 

While  it  is  clear  that  a  nation  with  the  largest  home  market 
— i.e.,  population  and  wealth — for  the  products  of  skilled  in- 
dustries will  have  an  initial  advantage,  yet  we  have  seen 
that  this  is  not  such  a  severe  handicap  as  might  appear.  The 
success  of  Sweden,  Switzerland,  and  Belgium  in  such  industries 
shows  that  a  small  nation  may  overcome  this  natural  dis- 
advantage if  in  attempting  to  develop  them  it  utilizes  all  the 
brains  and  skill  to  be  found  in  its  people. 

We  have  assumed  here  that  each  nation  will  retain  for 
itself  its  home  market  for  its  most  valuable  industries,  for 
if  not  it  handicaps  itself  irretrievably.  It  must  be  recognized 
as  not  merely  the  right  but  the  duty  of  every  nation  to  keep 
such  industries  inviolate  ;  to  neglect  to  do  so  is  to  commit 
economic  suicide. 

Confirmation  of  the  foregoing  may  be  obtained  from  a 
study  of  the  industrial  development  in  all  civilized  countries 
since  1885,  when  the  monopoly  of  the  English  as  the  skilled 
workers  of  the  world  came  to  an  end,  and  particularly  from 
the  British  census  of  production  of  1907,  published  in  1913, 
which  exposed  the  disgraceful  value  output  per  worker  in 
what  are  termed  the  '  greatest '  British  industries. 

Thus,  every  country  should  not  only  produce  that  for 
which  it  is  naturally  most  suitable,  improve  its  education 
and  apply  it  to  the  existing  best  and  every  new  and  higher 
industry,  but  it  cannot  allow  any  interference  with  these, 
for  upon  the  maintenance  and  growth  of  them  national 
well-being  depends,  and  it  must  at  all  costs  preserve  its 
market  for  their  output  against  all  international  competition 
whatsoever. 


215 


CHAPTER   XIX 

THE   FREE   PRODUCTION   OF   WEALTH   AND   ITS 
ASSURANCE 

IN   Chapter   III  we  showed   that    the  existence  of  man- 
wealth  is  due  primarily  to  the  employment  of  brains  and 
skill  in  production,  and  in   Chapter   V   that  nothing  can 
increase  the    intrinsic  value   of   goods   when  once  produced, 
that  trade  or  exchange  only  increases  their  price,  and  that 
all  wealth  amassed  through  trade  is  obtained  at  the  expense 
of  other  parties. 

-  In  Chapter  X  the  variable  value  of  a  nation's  industries 
was  discussed,  and  we  saw  that  this  is  determined  by  the 
wealth  produced  per  worker,  from  which  it  appears  that  if 
the  wealth-wage  paid  were  proportional  to  skill,  which  it  ought 
to  be,  the  national  value  of  an  industry  would  be  readily 
calculable  by  adding  to  the  employer's  net  profits  all  wages 
paid  in  excess  of  the  living  wage,  and  dividing  the  result  by 
the  number  of  workers. 

Although  in  applying  this  to  a  self-contained  nation  we 
had  to  realize  that  it  was  not  quite  a  true  guide,  because 
wages  at  present  paid  have  no  relation  to  value,  and  one 
set  of  workers  may  be  benefiting  at  the  expense  of  another, 
when  we  are  comparing  the  respective  values  of  industries 
engaged  upon  export  the  problem  is  much  simplified,  for  the 
exchange  value  produced,  or  the  selling  price  obtained,  per 
worker  now  decides  the  total  amount  of  goods  receivable  in 
exchange,  and  therefore  also  the  value  of  this  production  to 
the  nation. 

In  the  preceding  chapter  we  deprecated  interference  by 
one  nation  with  the  best  industries  of  another,  and  if,  as 
we  have  shown,  all  national  wealth  is  due  to  production, 
216 


FREE  PRODUCTION  OF  WEALTH 

and  the  nation's  total  wealth-increment  to  the  quality  of  its 
industries  (ignoring  profit  obtained  through  unfair  exchange 
with  other  nations),  it  is  clear  that  such  interference  (usually 
through  underselling)  must,  if  permitted,  reduce  the  nation's 
wealth-production,  wherefore  it  must  be  prohibited.  Thus  the 
first  clause  in  the  charter  of  every,  nation  must  be  FREEDOM 
TO  PRODUCE,  and  the  question  naturally  arises  as  to  how  this 
is  to  be  assured  to  all. 

In  the  earliest  days  of  man,  when  he  produced  his  daily 
necessaries  of  life  and  no  more,  if  he  took  necessaries  from 
another  without  giving  an  equal  value  in  return  he  did  so  by 
force  or  fraud,  and  this  was  equivalent  to  murder,  for  a  shortage 
of  necessaries  meant  death. 

At  a  later  stage  man  produced  more  than  his  necessaries 
of  life,  or  wealth,  and  the  first  producer  thereof,  the  farmer, 
who  compelled  the  land  to  yield  him  wealth,  marked  it  out 
and  fenced  it  round,  with  the  approval  of  the  community,  as 
indeed  is  done  to  this  day,  in  order  to  prevent  interference 
with  the  results  of  his  labour,  and  the  more  valuable  his  crop, 
or  the  '  quality  '  of  his  production,  the  more  care  he  natur- 
ally devoted  to  his  soil,  his  sowing,  and  his  fences.  In  other 
words  he  '  protected  '  his  wealth-production  from  interference. 
Further,  the  righteousness  of  this  does  not  apply  only  to  that 
greatest  industry  which  supplies  mankind  with  food,  or  his 
primary  necessities  of  subsistence,  but  to  all  industries,  and 
a  nation's  best  crop  being  derived  from  those  that  are  most 
skilled,  they  must  be  the  most  securely  fenced. 

In  those  early  days  there  was  no  question  of  the  existence 
of  a  market,  for  man  lived  a  more  hand-to-mouth  existence, 
yet,  as  we  showed  in  the  preceding  chapter  that  the  reservation 
of  a  market  was  essential  to  efficient  production,  the  protection 
of  production  includes  the  reservation  of  a  market  for  the 
resulting  output.  Consequently,  if  the  prosperity  of  farmers 
depends  upon  the  security  of  their  market  (and  they  are  at 
least  assured  one  for  perishable  produce),  how  much  more  so 
does  that  of  the  skilled  industries,  which  yield  the  highest 
value  per  worker,  and  also  need,  in  almost  every  case,  a  greater 
capital  outlay  per  head  for  buildings,  machines,  experiments, 

217 


THE  REAL  WEALTH  OF  NATIONS 

high  wages,  and  therefore  require  a  continuous  output  for  any 
efficient  production  at  all. 

Again,  neither  the  farmer  nor  his  workers  nor  any  pro- 
ducers can  dissociate  themselves  from  their  country,  its 
welfare  or  misfortunes,  and  as  under  any  scheme  of  taxation 
or  existing  distribution  of  wealth  they  are  bound  to  part  with 
some  of  it  to  help  the  less  fortunate,  it  is  obvious  that  the 
more  wealth  produced,  the  larger  the  share  of  the  latter  may  be. 

Some  socialists,  however,  suggest  that  we  abolish  private 
ownership,  but  if  we  dispossess  a  man  of  the  wealth  he  produces, 
the  next  step,  logically,  is  internationalization  of  wealth,  and 
we  doubt  whether  intelligent  men,  or  an  industrious  nation, 
are  so  far  developed  in  their  altruistic  education  that  they  are 
willing  to  work  for  the  less  deserving,  or  to  share  equally  with 
them,  and  as  civilization  is  due  to  the  work  of  superior  men, 
so  all  will  never  attain  an  equal  perfection. 

Thus,  although  man  has  so  far  advanced  as  to  appreciate 
that  he  has  obligations  to  his  fellow-men,  all  men  will  never 
be  selfless,  nor  would  all  be  contented  with  an  equal  share  of 
production.  Were  all  the  wealth  in  the  world  divided  equally 
to-day  it  would  be  unequally  distributed  to-morrow,  because 
all  men's  habits  and  desires  are  not  identical. 

If  freedom  to  produce  and  to  acquire  wealth  be  so  obviously 
essential  to  civilization  and  the  economic  development  of 
nations,  how  comes  it  that  its  antithesis,  underselling,  or  the 
right  to  buy  in  the  cheapest  market,  has  come  to  be  generally 
accepted  as  the  first  consideration  ?  The  answer  is,  once 
again,  the  confusion  of  money  with  wealth. 

The  man  with  money  in  his  pocket  naturally  wants  to 
obtain  the  largest  amount  of  goods  for  it.  He  stops  to  think 
neither  of  how  the  money  got  there,  nor  of  what  decides  its 
value  or  purchasing  power — indeed,  he  generally  looks  upon 
the  latter  as  constant.  Let  us  consider  the  question  apart 
from  money,  and,  to  remove  prejudice,  between  three  equally 
skilled  men  of  the  same  nation. 

If  Peter  and  Paul  are  both  growers  of  potatoes,  while 
Arthur  produces  artichokes  (both  of  which  products  have  a 
definite  intrinsic  value  corresponding  to  an  equitable  exchange 
218 


FREE  PRODUCTION  OF  WEALTH 

value),  the  latter  has  two  markets  to  choose  from.  We  will 
assume  that  Peter  and  Paul  are  equally  efficient,  and  that 
each  produces  such  a  surplus  over  his  own  consumption  every 
day  that  he  can,  on  the  average,  rest  not  only  on  Sunday,  but 
also  on  Saturday  or  some  other  week-day.  Arthur  asks  them 
both  how  many  pounds  of  potatoes  they  will  give  him  for 
10  Ib.  of  artichokes,  which  he  produces  in  one  week  and  which 
have  an  intrinsic  value  equal  to  20  Ib.  of  potatoes.  Paul 
suggests  20  Ib.  of  the  latter,  which  amount  he  also  pro- 
duces in  a  week,  but  Peter  dislikes  Paul,  and  to  do  him  a 
bad  turn  offers  24  Ib.,  or  the  result  of  his  labour  for  one  week 
and  one  further  working  day.  The  result  is  that  Arthur 
gains  through  the  exchange  at  Peter's  expense,  and  if  the 
conditions  were  maintained  the  latter  would  have  to  work 
six  whole  days  a  week,  and  his  standard  of  living  would  be 
lowered.  If  it  is  convenient  for  Paul  to  consume  all  of  his  own 
potatoes  he  is  not  injured,  but  if  he  grows  them  with  a  view  to 
exchanging  some  of  them  for  artichokes,  he  is  also  adversely 
affected,  because  if  Arthur  can  obtain  all  the  potatoes  he 
needs  from  Peter  he  will  not  make  Paul  a  better  offer.  Thus, 
the  result  is  that  Arthur's  gain  is  exactly  balanced  by  Peter's 
loss,  and,  having  accepted  a  lower  standard  of  living,  the  latter's 
position  may  affect  that  of  Paul  also. 

In  this  transaction  Arthur  is  the  consumer  or  buyer,  and,  as 
every  man,  woman,  and  child  are  consumers,  consumers  will 
always  be  in  the  majority.  While  the  consumer,  Arthur,  is 
better  off  at  the  expense  of  Peter,  not  only  is  there  no  evidence 
that  he,  as  buyer  or  consumer,  is  more  deserving  than  the 
producer  or  seller,  but  there  is  no  gain  to  this  community, 
for  all  three  consumers  are  not  better  off,  there  being  at 
least  one  who  is  worse  off  by  exactly  the  same  amount  as  the 
other  is  better  off,  as  we  have  seen. 

Were  our  community  limited  to  three  persons,  having  no 
other  requirements  than  potatoes  and  artichokes,  there  is 
nothing  more  to  consider,  and  Arthur  retains  the  ascendancy 
through  Peter's  foolishness.  Let  us  introduce,  however, 
William,  who  grows  wheat  for  this  community,  when  unless 
Peter  be  a  philanthropist  he  will  endeavour  to  pass  on  his  loss 

219 


THE  REAL  WEALTH  OF  NATIONS 

by  making  William  give  him  more  of  his  wheat  for  his  potatoes, 
and  if  he  be  successful  he  will  thereby  reduce  also  his  standard 
of  living.  The  process  will  now  also  affect  Arthur,  who,  though 
a  buyer  of  potatoes,  is  a  producer  and  seller  of  artichokes. 
He  will  consequently  have  to  surrender  more  in  exchange  for 
wheat,  and  the  little  community  of  four  will  now  therefore 
have  a  six  days'  working  week,  and,  although  producing  more 
material  wealth,  must  confess  to  a  lower  civilization. 

The  introduction  of  money  does  not  affect  this  hypothesis, 
for  the  money  in  Arthur's  pocket  is  the  result  of  a  certain 
number  of  his  hours'  work,  and  if  he  buys  more  cheaply  he 
will  have  to  sell  his  labour  more  cheaply,  unless  he  can  fool 
everybody  all  the  time.  Thus,  liberty  to  buy  in  the  cheapest 
market  affects  production  and  interferes  with  those  who  desire 
a  higher  standard  of  living.  It  compels  the  whole  community 
to  live  upon  the  same  degraded  level. 

A  desire  to  obtain  what  others  possess,  and  at  the  cheapest 
possible  price,  is  natural  to  man,  and  is  dealt  with  in  the  Tenth 
Commandment.  If  permissible  without  regard  to  any  con- 
ditions whatsoever,  it  would  result  in  the  strong  and  clever 
compelling  the  weak  and  foolish  to  be  their  slaves,  the  right  to 
buy  on  price  alone,  regardless  of  the  value  exchanged,  giving 
the  strong  the  power  to  force  the  weak  to  work  for  them  for  an 
inadequate  return,  a  condition  which  is  indistinguishable  from 
slavery. 

So  far  we  have  assumed  an  equal  efficiency  in  production, 
or  equal  skill,  but  if  Arthur  be  unskilled  and  Peter  skilled, 
and  they  exchange  according  to  value  produced,  Arthur  must 
give  more  labour-hours  to  Peter  than  he  to  Arthur,  and  must 
thereby  confess  that  he  is  less  civilized.  Similarly,  if  a  group 
of  men  exchange  more  for  less  labour-hours  with  another, 
the  former  would  have  to  confess  to  a  lower  standard  of  living, 
and  that  the  fact  is  not  realized  is  due  to  indirect  exchange 
and  the  use  of  money. 

For  example,  if  Arthur  were  to  buy  10  hours'  labour  from 
Peter  with  20  tokens,  and  then  allowed  Peter  to  buy  back 
from  him  20  hours'  labour  with  the  same  tokens,  he  doubt- 
less would  soon  realize  the  disadvantage  of  the  proceedings, 
220 


FREE  PRODUCTION  OF  WEALTH 

but  what  happens  is  this  :  Arthur  with  20  tokens  in  his 
pocket,  the  result  of  20  hours  of  his  work  in  producing 
some  articles,  buys  some  articles  M,  produced  in  10  hours  by 
Peter,  from  a  middleman,  who  uses  the  20  tokens  to  buy 
some  articles  P,  produced  in  20  hours,  from  Paul,  who  is 
presumed,  like  Arthur,  to  be  unskilled.  The  latter  with  these 
tokens  buys,  directly  or  indirectly,  from  Arthur  the  articles  L, 
representing  equal  labour-hours,  but  neither  Paul  nor  Arthur, 
for  both  are  equally  concerned,  realizes  that  he  is  in  a  worse 
position  than  Peter,  and  should  consequently  endeavour  to 
become  skilled,  because  they  do  not  know,  and  are  apparently 
indifferent  to,  the  number  of  labour-hours  exchanged. 

Let  us  next  assume  that  Paul  and  Arthur  are  sharing  their 
wealth-production,  and  that  the  former  succeeds  in  producing 
in  12  hours  the  articles  M,  which  he  proceeds  to  offer  to 
Arthur  for  24  tokens.  Now,  although  Arthur  poses  as  a  friend 
of  Paul,  he  says,  "Business  is  business,"  and  continues  to  buy 
M  from  Peter,  who,  with  the  tokens  received,  again  buys  P 
from  Paul,  thus  compelling  him  to  remain  in  an  inferior  position, 
for  had  Arthur  bought  M  from  Paul  the  latter  would  only  have 
had  to  give  up  the  labour  of  12  hours.  Thus  Arthur  can,  if 
he  buys  in  the  cheapest  market,  condemn  Paul  to  a  lower 
standard  of  living.  He  is  not  so  clever  as  he  thinks,  however, 
for  although  he  has  saved  4  tokens,  had  he  bought  direct  from 
Paul  the  latter  would  have  had  8  further  hours  available  for 
production,  upon  which,  if  he  and  Arthur  were  working 
together,  Arthur  would  have  a  claim,  with  the  result  that  the 
value  of  the  money  in  his  pocket  would  increase.  The  average 
hours  necessarily  worked  by  Paul  and  Arthur  would  now  be 
J(20 -|-  12)  =  1 6,  and  as  alternatively  one  section  of  the  com- 
munity in  a  civilized  nation  has  no  right  to  slack  while  another 
works,  Paul  would  have  been  forced  to  work  another  8  hours, 
in  the  result  of  which  Arthur  would  share.  Thus,  Arthur  and 
Paul  as  one  community  would  have  gained  8  hours  of  Paul's 
labour,  worth  f  of  20  tokens,  or  I3'3,  as  compared  with  a 
gain  of  4  tokens  to  Arthur.  Consequently  Arthur  has  succeeded 
in  condemning  both  Paul  and  himself  to  a  lower  standard  of 
living,  the  while  Peter  benefits,  for  a  greater  purchasing  power 

221 


THE  REAL  WEALTH  OF  NATIONS 

of  money  follows  from  the  increased  rate  of  production  due  to 
exchanging  less  for  more  labour-hours  and  indicates  a  greater 
prosperity. 

The  confusion  between  price  and  cost  is  again  manifest, 
for  while  Arthur  buys  at  a  cheaper  price  from  Peter,  the  cost 
(borne  eventually  by  both  Paul  and  Arthur)  of  that  which  he 
has  to  surrender  in  return  is  higher,  for  the  true  cost  being  the 
necessaries  of  life  consumed  by  the  workers  is  proportional  to 
their  hours  of  labour. 

What  then  is  Arthur  and  Paul's  remedy  but  to  refuse  to 
buy  from  Peter  ?  Yes,  actually  refuse  to  buy  in  the  cheapest 
market,  refuse  to  exchange  more  of  their  labour  for  less  of 
another,  and  refuse  to  accept  a  relatively  lower  standard  of 
living.  If  Peter  can  produce  M  in  10  hours,  they  must,  assum- 
ing equal  natural  advantages,  also  be  able  to  do  so,  even  if  at 
first  Paul  requires  12  hours,  unless  indeed  Peter  be  better 
educated  and  they  are  content  that  he  should  remain  so,  in 
which  case  if  they  are  not  to  fall  further  behind,  they  must 
close  their  market  to  Peter  and  start  at  once  to  produce  M 
themselves,  i.e.,  they  must  adopt  FREE  PRODUCTION  and 
deny  the  right  of  any  individual  to  buy  in  the  cheapest 
market  to  the  detriment  of  his  fellows,  and  ultimately  of 
himself  also. 

Even  if  Paul  be  at  a  natural  disadvantage — e.g.,  is  not 
able  to  produce  M  in  less  than  12  hours — he  is  better  off  in 
achieving  that  than  in  producing  P  in  20  hours,  and  con- 
sequently Arthur  and  Paul  should  in  this  case  also  close  their 
market  to  Peter,  unless  they  can  offer  him  an  alternative 
article  representing  less  than  12  hours'  labour. 

The  application  of  the  foregoing  to  international  trade  is 
obvious.  If  we,  Arthur  and  Paul,  buy  from  a  nation  with  a 
higher  standard  of  living,  represented  by  Peter,  an  article 
which  we  could  have  produced  ourselves  in  less  labour-hours 
had  we  closed  our  market,  we  confess  to  a  lower  civilization, 
i.e.,  less  leisure  or  power  to  produce  material  wealth.  On  the 
other  hand,  if  we  buy  at  a  cheaper  price  from  a  nation  with  a 
lower  standard  of  living  an  article  which  we  also  make  our- 
selves, we  compel  our  workers  to  accept  the  same  low  standard, 
222 


FREE  PRODUCTION  OF  WEALTH 

and  our  remedy  is  to  give  up  the  production  of  this  article  in 
favour  of  a  product  of  a  more-skilled  industry. 

The  quality  of  international  trade  can  therefore  only  be 
gauged  by  the  number  of  labour-hours  exchanged,  and  not 
only  does  a  nation  which  opens  its  market  to  the  products  of 
labour  more  skilled  than  its  own  -confess  to  a  lower  economic 
development,  but  it  actually  prevents  an  appreciation  in  the 
value  of  its  money,  for  the  consumer  in  buying  that  which 
ought  to  have  been  produced  at  home  is  preventing  that  more 
efficient  production  upon  which,  other  things  remaining  un- 
altered, an  increase  in  the  purchasing  power  of  his  own  money 
depends. 

The  distinction  between  national  and  individual  cost  was 
shown  in  Chapter  X,  and  although  an  individual  who  in  his 
own  personal  interests  buys  a  foreign  article  cheaply,  thereby 
sending  less  money  abroad,  may  submit  that  as  a  result  a 
lesser  quantity  of  goods  need  be  exported  to  redeem  it,  it  does 
not  follow  that  a  lesser  number  of  labour-hours  (national  cost) 
are  required  in  the  making  of  these  goods  for  export  than  would 
have  been  necessary  to  produce  at  home  the  goods  imported. 
If  an  individual  pays  a  higher  price  to  his  own  countrymen, 
this  represents  but  a  transfer  of  wealth,  and  a  less  cost  in  the 
labour-hours  may,  as  we  have  seen,  outweigh  any  possible 
saving  in  price,  wherefore  it  is  equally  the  duty  of  a  nation 
as  of  an  individual  to  refuse  to  buy  in  the  cheapest  market. 

In  other  words,  an  article  produced  in  a  skilled  industry 
should  represent  a  high  value  per  worker,  and  therefore  a  high 
wealth-wage,  as  shown  in  Chapter  X,  and  even  if  the  workers 
producing  this  article  received  exorbitant  wages,  so  that  the 
home  price  was  excessive,  indicating  an  unfair  distribution  of 
wealth,  the  nation  would  still  lose  if  a  similar  article  were 
imported  from  abroad  merely  because  its  price  was  cheaper, 
and  the  products  of  unskilled  labour  were  exported  to  pay  for 
it.  In  such  a  case  the  nation  would  actually  be  poorer  by 
the  whole  of  the  wealth-wage,  probably  exceeding  by  far  any 
price  difference,  and  to  urge  that  men  thrown  out  of  employ- 
ment would  immediately  find  a  better  job  is  equivalent  to  saying 
that  a  man  would  choose  the  worse  of  two  posts  offered  him. 

223 


THE  REAL  WEALTH  OF  NATIONS 

Although,  to  the  thoughtless,  Free  Trade  sounds  natural, 
and  Protection  artificial,  civilization  depends  upon  a  restriction 
of  man's  liberty,  and  no  one  publicly  advocates  Free  Love, 
which  is  equally  natural.  Indeed,  Free  Trade,  or  unrestricted 
liberty  in  buying  and  selling,  be  it  of  goods  or  labour,  is  a 
reversion  to  the  law  of  force,  and  if  it  be  rightly  forbidden  to 
purchase  labour  below  a  certain  price  by  the  threat  of  starva- 
tion or  force,  it  cannot  be  right  to  ignore  this  condition  in  the 
purchase  of  its  product,  viz.,  goods.  Similarly  "  giving  free  play 
to  the  law  of  supply  and  demand,"  as  applied  to  necessaries, 
is  neither  more  nor  less  than  profiteering. 

That  the  workers  themselves  have  not  realized  these  truths, 
and  the  importance  of  the  quality  of  industries,  is  due  to  the 
fact  that  they  have  failed,  in  the  absence  of  a  unit  of  value, 
to  measure  the  national  value  of  industries  and  to  recognize 
the  identity  of  their  interests  with  those  of  their  employer. 
Free  production  in  those  industries  which  most  benefit  a  nation 
is  essential,  and  can  only  be  assured  by  that  protection  of 
industries,  or  reservation  of  their  market,  which,  as  we  have 
shown,  is  as  natural  as  civilization,  and  part  and  parcel  thereof. 

Nevertheless,  the  real  advantage  of  Protection  has  been 
overlooked.  This  lies  solely  in  the  opportunity  afforded  for 
the  development  of  skilled  industries,  and  for  the  application 
thereto  of  those  continual  improvements  in  education  the 
importance  of  which  is  universally  recognized.  For  a  nation 
to  protect  all  its  industries  equally  would  be  wrong,  although 
it  would  be  better  than  protecting  none  of  them,  for  labour 
must  not  be  attracted  to  the  unskilled  industries,  because  only 
the  retention  of  its  skilled  industries  benefits  a  community. 
Indeed,  if  less  civilized  or  more  foolish  people  will  do  the 
unskilled  work  of  another  nation  and  become  its  economic 
slaves,  that  can  only  be  to  its  advantage.  No  civilized  nation 
covets  the  unskilled  industries  of  another,  nor  does  a  farmer 
build  walls  or  fences  on  barren  ground,  but  protects  his  crops 
and  bars  out  trespassers.  Similarly  a  nation  is  justified  in 
reserving  to  itself  its  whole  market  for  the  products  of  its 
skilled  labour,  for  otherwise  its  industries  cannot  be  efficient. 

Thus,  prohibition  of  imports  of  all  such  products,  to  the 

224 


FREE  PRODUCTION  OF  WEALTH 

extent  of  the  nation's  utmost  capacity  to  produce  for  itself, 
is  right  and  desirable,  and  this  right  being  exercised,  a  mass 
of  unnecessary  and  wasteful  competition  would  be  obviated. 
Nevertheless,  a  skilled  industry  which,  on  account  of  natural 
difficulties,  is  unsuitable  for  a  country  should  not  be  protected  ; 
but  for  no  other  reason  should  a  civilized  nation  abdicate  its 
privilege,  to  do  which  is  to  confess  that  its  education  is  inferior. 
It  is  evident  that  the  consequence  of  universal  Protection, 
based  on  the  value  of  national  industries,  would  be  to  limit 
competition  to  those  industries  for  which  a  country  was 
unsuitable,  or  which  it  did  not  wish  to  develop,  whereas 
underselling  by  one  nation  of  another,  or  Free  Trade,  permits 
unlimited  competition,  waste,  and  the  degradation  of  humanity. 
Free  Trade  can  now  be  recognized  through  all  its  disguise  as 
false,  artificial,  selfish,  and  materialistic.  It  allows  those  who 
are  crafty  or  grasping  to  exploit  the  helpless,  uneducated,  and 
unsophisticated  classes,  while  a  Protection  based  on  the  value 
produced  per  worker  is  natural,  national,  and  moral,  defends 
the  weak  nations  against  the  strong,  right  against  might. 

We  will  deal  later  with  the  origin  and  effect  of  Free  Trade, 
and  only  remark  here  that  the  astonishing  failure  to  recognize 
wherein  industries  are  valuable  to  the  nation,  which  is  equally 
shared  by  the  so-called  Tariff  Reformers,  is  due  to  acceptance 
of  the  fundamental  fallacy  that  all  value  is  dependent  upon 
demand,  arid  wealth  is  derived  from  trade.  Were  that  true 
there  are  indeed  no  skilled  industries,  there  is  no  such  thing 
as  skill  or  brains,  and  the  least  educated  men  throughout  the 
world  who  carry  goods  about,  thus  making  them  available, 
create  the  wealth,  and  must  therefore  rule  humanity.  Bol- 
shevism, it  appears,  is  not  a  Russian  menace,  but  the  logical 
outcome  of  the  teachings  of  the  Victorian  economists. 


225 


CHAPTER    XX 

THE  EFFECT  AND   REAL  OBJECT  OF   PROTECTION 

HAVING  shown  that  free  production  is  as  vital  to  a 
nation  as  to  an  individual,  let  us  consider  next  the 
effect  of  that  Protection  which  is  essential  to  secure  it. 

We  will  for  a  moment  ignore  the  brand  of  Protection  at 
present  in  vogue  throughout  the  world,  because  it  does  not 
appear  to  be  based  on  any  logical  principles,  and  consider  a 
real  fence,  which  allows  of  no  trespass,  or,  in  plain  words, 
prohibition  of  any  imports  whatever  which  can  be  advan- 
tageously produced  at  home. 

All  our  producers,  both  masters  and  men,  now  enjoy  a 
monopoly,  and  will,  according  to  the  sages,  immediately 
advance  their  prices  and  exploit  their  fellow-countrymen — yes, 
all  exploit  all :  in  fact,  logically,  their  prices  will  be  so  out- 
rageous that  no  sales  whatever  will  be  possible  !  But  they 
must  sell,  or  their  production  would  be  valueless  to  themselves, 
and,  while  it  is  true  that  they  will  profiteer  so  long  as  the  law 
of  supply  and  demand  is  recognized,  that  is  only  what  everyone 
else  is  doing  at  the  present  day.  To  buy  as  cheaply  as  possible, 
and  sell  at  the  highest  price  obtainable,  is  surely  the  present 
meaning  of  '  business,1  so  that  even  if  one  set  of  men  only 
enjoyed  Protection  they  are  no  worse  than  the  rest,  and  it  is 
surely  a  curious  idea  to  bring  in  the  products  of  foreigners  in 
order  to  prevent  our  own  co-workers  becoming  rich. 

It  is  true  that  a  sudden  prohibition  would,  given  free  play 
to  that  false  law  of  supply  and  demand,  allow  profiteering  in 
necessaries  (we  know  that  people  can  go  without  luxuries 
and  thus  prevent  profiteering  in  these),  unless  prices  were 
regulated,  yet  one  season  later  the  exploitees  should  ensure 
that  the  nation  produced  its  own  necessaries  and  a  surplus. 
226 


REAL  OBJECT  OF  PROTECTION 

Further,  the  wholesale  attempt  to  exploit  the  rest  of  the 
country  must  result  in  retaliation  by  the  latter,  whereby  all 
prices  would  ultimately  be  advanced.  Any  thinking  person, 
therefore,  can  see  in  a  moment  that  one  section  of  the  popu- 
lation cannot  exploit  the  others  permanently,  that  there  are 
such  things  as  value  and  equity,  .and  that  in  every  state  of 
civilization  there  are  recognized  principles  of  distribution 
which  forbid  a  man  to  keep  all  his  wealth  to  himself.  We 
must  admit,  however,  that  so  long  as  the  law  of  supply  and 
demand  is  allowed  to  govern  wages  and  prices,  gross  abuses 
must  exist,  yet  were  the  principle  adopted,  as  shown  in 
Chapter  X,  of  wage-payment  according  to  value,  and  control 
of  the  profits  of  wealth-handlers,  prices  would  also  correspond 
to  value,  and  an  improvement  in  the  distribution  of  wealth 
would  follow  an  advance  in  altruistic  education. 

Higher  prices,  unless  they  are  controlled,  are  indeed  the 
first  effect  of  Protection,  a  depreciation  in  the  value  of  money, 
whereby,  although  everyone  has  more,  ultimately  no  one  is 
better  off,  because  the  amount  of  commodities  remains  the 
same ;  yet  with  an  unaltered  wealth-distribution  no  one  will  be 
worse  off  either. 

This  can  best  be  recognized  by  considering  employers 
abolished  (and  we  have  already  shown  their  community  of 
interest  with  their  employees),  when  Protection  for  one  set  of 
workers,  without  price-control,  or  wage-payment  according  to 
value  produced,  would  permit  them  to  raise  their  prices  and 
profits,  or  to  alter  the  distribution  of  wealth  to  the  detriment 
of  their  fellows.  This  set  of  workers,  therefore,  would  now 
be  receiving  higher  wages  than  correspond  to  their  skill,  but 
when  the  other  workers  recognized  their  disadvantage  through 
the  advance  in  prices  which  would  be  bound  to  occur  because 
with  the  same  distribution  prices  rise  pari  passu  with  wages  or 
cost,  they  too  would  clamour  for  higher  wages,  and  so  the  game 
would  go  on,  the  value  of  money  constantly  decreasing,  because 
more  tokens  would  now  be  necessary  to  purchase  the  daily 
necessaries  of  life. 

It  is  evident,  therefore,  that  the  first  effect  of  Protection 
is  exactly  similar  to  that  which  follows  an  increase  in  the 

227 


THE  REAL  WEALTH  OF  NATIONS 

wages  of  one  set  of  workers  without  a  corresponding  increase 
in  their  output;  yet  other  workers  do  not  raise  any  objection 
nor  realize  that  they  are  being  exploited,  or  that  the  wealth- 
distribution  is  altered  to  their  detriment,  because  they  think 
that  the  employer  keeps  a  sack  of  gold,  labelled  '  Wages,* 
from  which  higher  wages  can  surely  be  drawn  !  If  indeed 
an  advance  in  wages  were  followed  by  a  proportionately 
greater  output  (the  ultimate  object  of  Protection)  the  value  of 
money  would  remain  unaffected,  yet  not  merely  is  this  not  the 
case,  but  a  reduction  in  hours  and  amount  of  work  is  often 
demanded  as  an  accompaniment. 

The  perpetual  strikes  for  higher  wages  and  less  work  show 
how  deep-rooted  is  the  delusion  of  the  working  classes  that  they 
necessarily  benefit  from  higher  wages,  without  reference  to 
increase  or  otherwise  of  production.  This  is  due  to  their  habit 
of  considering  individuals,  instead  of  the  nation  as  a  whole,  as 
well  as  to  their  ignorance  of  the  relation  between  wages  and 
prices.  An  individual  who  obtains  a  '  rise '  undoubtedly 
benefits,  but  it  is  at  the  expense  of  his  fellows  unless  his  work 
be  now  worth  more,  although  this  passes  unnoticed,  because 
the  effect  of  the  resulting,  if  infinitesimal,  depreciation  in  the 
value  of  money  is  spread  over  the  multitude. 

The  workers  have  also  deceived  themselves  by  considering 
the  nation  divided  into  employers  and  employed,  instead  of 
into  producers  of  wealth  and  non-producers,  and  by  imagining 
that  Protection  which  only  affords  opportunity  for  increased 
production  benefits  the  employer  only. 

It  is  true  that  the  employers,  both  good  and  bad,  amassed 
fortunes  last  century,  regardless  of  the  conditions  of  their 
workers,  the  fruit  of  which  is  still  visible  in  filthy  manufac- 
turing towns,  yet  the  cause  of  this  was  merely  a  defective 
economic  and  moral  education. 

The  distribution  of  wealth  among  the  inhabitants  of  any 
country,  or  the  amount  which  the  greatest  wealth-producers 
share  with  the  less  capable,  is  artificial  and  regulatable  by 
taxation,  etc.,  and  the  effect  of  a  general  increase  in  wages 
upon  distribution  may  be  nil. 

Similarly,  a  general  increase  in  wages  has  no  effect  upon 
228 


REAL  OBJECT  OF  PROTECTION 

the  real,  i.e.,  national,  cost  of  production,  which,  as  we  know, 
is  measured  solely  by  labour-hours,  or  the  amount  of  necessaries 
consumed  for  a  given  output,  and  it  is  merely  equivalent  to 
introducing  a  new  set  of  tokens  with  less  purchasing  power. 

Of  course,  as  we  saw  in  Chapter  XVII,  a  fictitious  rate  of 
international  exchange,  i.e.,  one  not  corresponding  with  the 
real  value  of  money  in  each  country,  does  help  one  nation  to 
undersell  another,  sometimes,  sad  to  say,  to  its  own  detriment, 
even  if  its  wealth-handlers  and  certain  producers  benefit, 
but  this  underselling  is  due  to  the  false  rate  of  exchange  and 
not  to  a  depreciation  in  the  home  currency. 

It  follows,  therefore,  that  Protection,  or  any  artificial 
increase  in  prices  resulting  in  a  depreciation  in  the  value  of 
money,  has  no  effect  upon  our  real  power  to  compete  in  neutral 
markets. 

This  truth,  as  must,  indeed,  be  the  case  with  all  truths,  is 
confirmed  in  practice,  for  it  is  notorious  that  nations  which 
protect  their  industries  and  often  depreciate  their  own  money 
are  most  successful  competitors  with  Britain  in  foreign  markets, 
although  it  must  be  admitted  that  they  do  not  seriously 
attempt  to  undersell  sweated  British  labour,  nor  the  products 
of  Britain's  *  great  unskilled  '  industries,  textiles,  shipping,  etc. 
It  would  be  a  fruitful  task  to  compare  the  wages  and  standard 
of  living  of  the  employees  of  English  millionaires  with  those 
in  the  United  States. 

It  is  true  that  nations  still  compete  with  one  another  in 
the  export  of  coal,  etc.,  each  trying  to  get  rid  of  its  capital, 
but  that  again  arises  from  ignorance  of  the  economic  value  of 
the  mineral,  and  the  licence  accorded  to  individuals,  colliery 
proprietors  and  miners,  to  exploit  their  countrymen. 

If,  then,  Protection  of  itself  merely  depreciates  the  value 
of  money,  and  affects  neither  cost  of  production  nor  power 
to  compete  in  neutral  markets,  it  is  impossible  that  it  should 
harm  a  nation,  which  is  obvious,  and  is  confirmed  by  the 
advancement  in  protected  countries  during  the  twenty-five 
years  preceding  the  War.  Bearing  in  mind  the  enormous 
wealth-production  last  century  of  Free  Trade  Britain,  why  is 
it  that  her  miserable  towns  compare  most  unfavourably  with 

229 


THE  REAL  WEALTH  OF  NATIONS 

those  of  other  industrial  nations  ?  Despite  the  unfair  distri- 
bution in  Germany  and  the  withdrawal  of  men  for  military 
service,  even  there  huge  expenditure,  derived  from  her  pro- 
duction, was  laid  out  on  municipal  and  State  improvements, 
in  which  even  the  poorest  classes  share. 

Protected  countries  have  competed  with  Britain  success- 
fully in  neutral  markets,  in  the  products  of  skilled  industries, 
because,  as  already  indicated,  these  industries,  requiring  more 
capital  per  worker,  are  most  dependent  upon  a  large  and 
continuous  production,  whence,  having  their  home  market, 
an  increased  output  for  export  is  possible  at  a  low  cost. 

The  last  is  also  true  to  some  extent  of  unskilled  industries, 
yet  not  merely  have  many  of  these  nearly  reached  the  limit 
of  their  efficiency,  but,  owing  to  the  low  wealth-production 
per  worker,  their  growth  does  not  benefit  the  nation.  Those 
in  England  who  submit  that  Protection  injures  the  nation  as 
a  whole,  have  much  to  explain  away,  and  that  they  have 
managed  so  long  to  delude  the  workers  arises  from  the  ignorance 
of  the  latter  as  to  the  source  and  measurement  of  wealth  and 
their  narrow  conception  of  the  employer  as  one  who  pockets 
all  the  price-increase  derived  from  Protection,  ignores  totally 
the  interests  of  his  workers,  avoids  taxation,  and  finally  takes 
his  wealth  with  him  to  that  hell  for  which  all  employers  are 
ultimately  bound. 

Obviously  if  the  employer  could  retain  the  whole  price- 
increase  an  alteration  in  the  existing  distribution  of  wealth 
would  be  demanded  and  be  made. 

That  Protection  or  Prohibition  for  skilled  industries,  which 
increases  the  wealth-production  of  the  whole  nation,  has  not 
been  generally  accepted,  is  due  to  the  confusion  of  '  necessary  ' 
and  '  luxury  '  values,  whereby  all  value  depends  upon  demand, 
wealth  cannot  be  measured  immediately  upon  its  production, 
and  a  '  quality  '  in  industry  is  non-existent.  From  acceptance 
of  the  sham  law  of  supply  and  demand  arises  also  the  delusion 
that  wealth,  save  that  of  an  individual  or  nation  at  the  expense 
of  another,  is  due  to  trade,  and  that  it  benefits  the  majority  to 
buy  in  the  cheapest  market,  yet  we  have  proved  that  the  whole 
nation  loses  when  it  imports  the  products  of  foreign  skilled 
230 


REAL  OBJECT  OF  PROTECTION 

labour  because  they  are  cheap,  and  pays  for  them  by  export- 
ing the  products  of  its  less-skilled  labour,  and  consequently  it 
can  only  be  the  individual  who  benefits  by  such  cheap  prices 
at  the  expense  of  his  fellows. 

On  the  other  hand,  there  is  another  school  which  believes 
that  Protection  of  itself  benefits  a  nation,  and  produces  revenue, 
thus  relieving  the  taxpayers.  This  is  equally  illusory,  for 
Protection  only  allows  men,  or  a  nation,  to  produce  more  and 
does  not  compel  them  to  make  use  of  it,  or  to  progress  to 
higher  industries,  while  the  additional  revenue  being  ultimately 
paid  for  by  the  consumer  (unless  the  foreigner  pays  the  whole 
tax,  in  which  case  he  could  equally  well  reduce  his  price  by 
the  same  amount)  necessitates  a  correspondingly  higher  home 
price.  Thus,  this  method  of  procuring  revenue  is  unsound, 
as  is  indeed  all  indirect  taxation,  for  it  is  impossible  to  direct 
its  incidence  equitably. 

Of  course  the  real  object  of  protective  duties  is  to  keep  out 
certain  commodities,  make  these  at  home,  and  thus  add  to  the 
wealth  produced,  but  if  the  home  production  be  unequal  to 
the  nation's  requirements,  and  it  is  desirable  to  buy  from 
foreign  countries,  importation  under  licence  is  preferable  to 
the  imposition  of  import  duties.  The  distribution  could  be 
effected  through  the  ordinary  channels,  when  if  the  foreign 
price  be  cheaper  the  average  home  price  should  be  reduced, 
and,  if  dearer,  increased.  In  either  case  the  increase  in  price 
necessary  to  cover  the  cost  of  handling  can  be  controlled. 

It  is  obvious  that  if  the  foreign  price  be  dearer,  the  home 
producer  will  have  every  inducement  to  increase  his  output, 
whereas  if  cheaper,  the  question  arises  whether  it  is  advan- 
tageous to  the  nation  to  continue  its  home  production.  The 
nature  of  the  answer  would  be  determined  by  the  quality  of 
the  industry,  and  whether  it  provided  necessaries  of  life. 

It  is  true  that  the  tariffs  in  force  to-day  appear  to  ignore 
these  considerations  and  to  have  been  imposed  through 
influence  and  with  reference  to  the  home  selling  price,  but 
this  is  hardly  surprising  when  it  is  remembered  that  the  means 
of  gauging  the  national  value  of  an  industry  remain  unappre- 
ciated. Usually  a  set  of  manufacturers  demands  a  duty  in 

231 


THE  REAL  WEALTH  OF  NATIONS 

order  to  handicap  foreign  competitors,  and  this  is  imposed 
irrespective  of  whether  the  industry  yield  a  high  wealth-wage 
or  not.  Those  who  demand  free  imports  most  loudly,  the 
employers  of  unskilled  labour,  and  their  dupes,  are  not  actuated 
by  less  worldly  considerations,  for  although  certain  individuals 
benefit,  the  nation  as  a  whole  does  not,  unless  the  imports  be 
entirely  the  products  of  unskilled  labour,  as  during  Britain's 
industrial  supremacy  in  the  nineteenth  century,  when  she  had 
no  foreign  competition  to  meet  and  nothing  to  protect  save 
agriculture  or  the  production  of  necessaries. 

We  have  already  learned  that  a  nation's  material  and 
moral  welfare  depends  upon  the  quality  of  its  industries,  so 
that  no  good  purpose  is  served  in  protecting  or  keeping  out 
the  products  of  unskilled  labour,  articles  which  a  nation  cannot 
itself  efficiently  produce,  nor  any  of  Nature's  irreplaceable  raw 
material  that  exists  in  limited  quantities,  and  which  is  offered 
at  a  favourable  rate  of  exchange. 

As  compared  with  protective  duties,  it  is  obvious  that 
Prohibition  has  an  advantage  in  the  avoidance  of  the  cost  of 
collecting  duties,  and  if  this  be  much  less  than  is.  of  ten  asserted 
it  nevertheless  represents  a  considerable  labour  wastage. 
Moreover,  the  most  important  object  of  Protection,  the  pre- 
vention of  underselling  and  interference  with  production,  is 
not  entirely  achieved  by  the  imposition  of  duties,  because  the 
latter  system  still  permits  a  mass  of  men  to  be  engaged  in 
import  trading  for  their  personal  profit,  and  that  of  certain 
producers,  or,  once  more,  it  puts  the  workers  of  one  nation  in 
competition  with  those  of  another. 

The  object  of  Protection  being  admittedly  the  prevention 
of  trespass  upon  a  nation's  production,  it  follows  that  behind 
this  barrier  a  nation  must  be  able  to  live  its  own  life  and  produce 
what  it  liKes — as  much  or  as  little  as  it  deems  necessary.  So 
long  as  it  admits  that  which  it  cannot  produce  efficiently  a 
protected  civilized  nation  need  lack  no  material  commodities 
whatsoever.  The  world,  however,  is  now  turning  away  from 
this  search  after  ever  more  material  wealth,  ever  new  and  un- 
necessary luxuries,  and  clamouring  for  shorter  working  hours  and 
less  work,  and  here  also  a  protected  nation  is  at  an  advantage. 
232 


REAL  OBJECT  OF  PROTECTION 

It  is  true  that  many  imagine  that  more  material  wealth 
and  less  labour  expended  upon  the  getting  of  it  is  simultaneously 
possible,  but  this  is  because  they  do  not  recognize  that  leisure 
is  the  alternative  form  of  wealth,  and  that  a  man  cannot  do 
nothing  and  something  at  one  and  the  same  time.  A  world 
consisting  of  old  ladies  who  sometimes  sit  and  think,  and 
sometimes  just  sit,  is  unthinkable.  Of  course  those  who  expect 
to  eat  their  cake  and  have  it  are  not  contemplating  their  own 
baking,  but  another's,  and  are  apparently  indifferent  to  the 
conditions  of  everyone  but  themselves,  for  it  is  obvious  that 
if  all  the  manual  workers  are  to  have  a  six  hours'  day,  unless 
they  work  much  harder  or  there  is  a  surplus  in  the  hands  of 
others  of  which  they  may  get  a  considerable  share  (and  the 
relatively  small  number  of  rich  compared  to  the  mass  of  the 
poor  must  not  be  overlooked),  there  will  be  less  goods  for  all, 
even  if  there  be  more  leisure.  We  may  add  that  the  deservedly 
successful  brain-worker  has  generally  laboured  for  many  years, 
twelve,  fourteen,  and  even  sixteen  hours  a  day. 

Another  objection  to  Protection  has  been  discovered  by 
one  of  the  most  respected  of  the  English  Labour  leaders,  Mr 
G.  N.  Barnes,  who  publicly  expressed  his  opinion  to  the  working 
classes  that  Protection  would  make  them  and  their  employers, 
in  fact,  the  whole  country,  slack. 

It  is  true  that  Mr  Barnes  did  not  respond  to  an  invitation 
to  compare  the  average  output  of  all  the  protected  countries 
with  his  own,  and  well  might  he  hesitate,  for  even  if  he  could 
discover  other  satisfying  explanations,  he  would  still  be  con- 
fronted with  the  fact  that  Free  Trade  has  not  made  Britain 
energetic.  Of  course,  Mr  Barnes  spoke  under  the  influence 
of  the  shibboleths  of  the  professional  economists.  Another 
English  Labour  leader,  Mr  G.  H.  Roberts,  went  so  far  as  to  say 
that  "  one  cannot  get  more  out  of  an  industry  than  is  put  into 
it,"  yet  he  too  did  not  differentiate  one  industry  from  another, 
because  he  also  knew  no  true  unit  of  value,  nor  the  source  of 
wealth-production. 

This  fear  that  slackness  will  result  from  Protection  is 
contradicted  by  experience,  and  in  the  first  chapter  of  this 
book  we  showed  that  civilization  is  the  result,  not  of  competition, 

233 


THE  REAL  WEALTH  OF  NATIONS 

nor  of  trade,  but  solely  of  the  superiority  of  some  men,  and 
of  man's  inherent  desire  to  create,  propagate,  or  to  impress 
himself  upon  his  generation.  Were  this  not  so,  Free  Trade 
England  ought  surely  to  have  had  a  monopoly  of  inventors 
during  the  forty  years  immediately  preceding  the  War,  whereas 
before  1914  it  was  the  habit  of  British  '  intellectuals  '  to  decry 
even  the  intelligence,  much  less  the  energy,  of  their  countrymen. 
That  they  were  wrong  has  been  demonstrated  by  the  wonderful 
inventions  made  during  the  War. 

Of  course  a  nation,  like  an  individual,  may  neglect  to  take 
advantage  of  its  opportunities.  A  potential  inventor  may  not 
invent,  because  being  the  originator  he  has  no  competition  to 
stimulate  him  to  action,  and  so  on,  with  regard  to  artists, 
poets,  etc. ;  and  as  the  individual,  so  the  nation,  which  is 
a  collection  of  individuals.  The  man  who  gets  most  out  of 
his  land  does  not  usually  have  the  worst  hedges,  and  the 
delusion  to  which  we  have  already  referred,  that  the  desire  for 
wealth  is  the  great  driving  force  of  the  world,  arises  largely 
from  the  fact  that  so  many  great  men  were  born  poor,  which 
compelled  them  to  work  the  harder  to  develop  themselves. 
The  fact  that  many  rich  men  lead  arduous  lives,  remote  from 
money-making,  supports  the  view  which  we  have  expressed — 
namely,  that  the  real  cause  of  progress  is  the  inequality  of 
superior  men. 

If  a  nation  does  not  take  advantage  of  Protection  it  is  no 
worse  off  than  before,  and  it  may  reach,  as  we  know,  a  higher 
state  of  civilization  than  one  which  worships  only  material 
wealth.  On  the  other  hand,  no  sensible  nation  will  deliberately 
remain  inefficient,  for,  as  Mr  H.  G.  Wells  has  said,  "  No  one 
really  likes  work,"  and  man  will  therefore  endeavour  to  get 
it  done  in  the  shortest  possible  time.  Further,  Protection, 
although  it  sets  a  limit  on  trade  and  international  competi- 
tion, in  no  way  hinders  intercourse,  nor  that  international 
co-operation  which  alone  is  necessary  for  the  advance  of 
civilization. 

A  sister  delusion  to  that  referred  to  above  is  found  in  the 
widespread  belief  that  living  is  more  expensive  in  a  '  protected  ' 
country.  It  is  true  we  may  find  that  British  money  does  not 

234 


REAL   OBJECT  OF  PROTECTION 

go  so  far  in,  say,  the  United  States,  but  although  that  is  of 
great  interest  to  Englishmen,  it  is  of  no  importance  to  the 
United  States.  The  workers  there  know  that  they  are  better 
off,  in  that  they  need  work  fewer  hours  to  obtain  a  given 
quantity  of  goods,  and  they  find  that  their  money  actually 
goes  farther  when  they  visit  England,  whence  they  too  jump 
to  the  corresponding  and  erroneous  conclusion  that  living  is 
cheaper  in  a  Free  Trade  country,  even  though  English  workers 
have  obviously  less  actual  wealth  and  work  at  least  as  many 
hours. 

The  phenomenon  results  from  the  rate  of  exchange  between 
the  two  countries  not  corresponding  to  the  true  purchasing 
power  of  money,  for  if  it  did  a  dollar  in  America  would  purchase 
an  identical  quantity  of  goods  with  45.  in  England  (assuming 
that  the  rate  of  exchange  were  4$.  =  $i).  That  it  does  not 
do  so  follows  from  an  adverse  rate  of  exchange  due  to  the 
internal  depreciation  of  American  money,  without  a  correspond- 
ing alteration  in  the  foreign  exchange.  The  disadvantages 
of  this  were  shown  in  Chapter  XVII. 

Did  the  rate  of  exchange  correspond  to  the  true  pur- 
chasing power  of  money,  the  Englishman  in  the  United  States 
would  be  equally  well  off  there  as  in  England,  although,  owing 
to  the  greater  quantity  of  commodities  in  the  former  country, 
due  to  a  more  efficient  production,  the  average  amount  of 
money  in  the  pockets  of  an  Englishman  would  be  less  than 
in  those  of  an  American.  Consequently  an  equally  efficient 
worker  from  England  would  be  poorer  than  his  American 
brother,  although  prices  would  not  now  be  higher,  because  his 
money  had  taken  him  longer  to  amass. 

It  is  obvious  that  a  nation  can  start  a  brand-new  coinage, 
or  may  depreciate  its  own  tokens,  without  affecting  its  wealth 
or  well-being  in  the  slightest,  and  the  dollar  has  depreciated 
in  America  by  other  causes  than  Protection,  such  as  universally 
higher  wages,  and  by  the  amount  corresponding  with  the 
extent  to  which  such  causes  have  not  been  counterbalanced 
by  increased  production.  Notwithstanding  a  steady  decline 
in  the  purchasing  value  of  the  dollar,  the  rate  of  exchange 
between  England  and  America  prior  to  the  War  remained 

235 


THE  REAL  WEALTH  OF  NATIONS 

practically  unaltered  for  many  years.  Commodities  are  really 
cheaper  to  home  consumers  in  a  country  with  the  greatest 
production  per  head,  and  only  dearer  to  foreigners  if  the  rate 
of  exchange  be  against  them. 

Thus,  neither  Protection  nor  Free  Trade  of  themselves 
affect  real,  or  labour,  cost,  although  the  former,  even  if  devised 
regardless  of  the  national  value  of  industries,  allows  of  the 
development  of  the  wealth-producing  industries,  because, 
given  a  free  choice,  they  must  be  the  most  attractive,  whereas 
the  latter  prevents  it,  and  the  widespread  conviction  that 
living  is  more  expensive  in  the  United  States  than  in  England 
in  spite  of  the  obviously  greater  well-being  of  American  workers 
is  another  example  of  those  false  deductions  and  doctrines 
with  which  the  manual  workers  of  the  world  have  been  deluded. 

Just  as  a  nation  must  protect  its  wealth-producing  indus- 
tries in  the  interests  of  its  home  workers,  so  must  it  prevent 
its  workers  from  engaging  in  low-class  industries  producing 
goods  for  export.  From  a  wise  restriction  of  both  exports 
and  imports  would  follow  prosperity  for  the  nation's  best 
industries,  and  labour  would  flock  thereto  and  their  products 
would  be  exported  because  they  yield  the  greatest  national 
wealth,  and  because  a  nation  with  a  monopoly  in  its  home 
market  can  cheaply  produce  a  surplus  for  foreign  markets. 
In  consequence  less,  if  any,  labour  would  be  available  for  the 
unskilled  industries  producing  for  export.  And  this  is  as  it 
should  be,  for  no  nation  ought  to  do  unskilled  work  for  another, 
unless  it  be  willing  to  accept  a  lower  civilization  and  standard 
of  living. 

Having  seen  that  the  effect  and  object  of  Protection  is  the 
maximum  wealth-development  of  every  nation,  it  is  evident 
that  if  we  recognize  the  sanctity  of  nations  and  their  right 
to  an  independent  economic  existence,  Protection  for  their 
workers,  or  their  charter  of  self-preservation,  cannot  be  a 
ground  for  international  offence  ;  in  fact,  the  delusion  that 
unlimited  competition  and  trade  between  nations — that  is,  the 
setting  of  all  workers  against  one  another — is  conducive  to  a 
world  peace  can  only  be  paralleled  by  the  belief  that  Protection 
benefits  the  employer  and  harms  the  worker. 
236 


REAL  OBJECT  OF  PROTECTION 

These  misconceptions  arise  from  the  same  cause,  viz.,  a 
division  of  communities  into  employers  and  employed,  instead 
of  producers  of  wealth  and  non-producers,  and  failure  to 
consider  the  nation  as  a  whole  and  to  recognize  its  real  source 
of  wealth.  It  is  not  its  unskilled  workers  that  most  benefit 
a  nation,  or  should  dictate  its  policy,  but  those  whose  skill  of 
hand  or  brain  bring  about  a  development  to  'that  higher 
civilization  which  is  the  craving  of  all,  and  which  evolves  as 
the  relative  number  of  unskilled  workers  diminishes,  for  that 
country  is  most  wealthy  both  materially  and  morally  which 
has  the  greatest  proportion  of  skilled  workers,  through  whom 
the  production  of  maximum  wealth  in  a  minimum  time  is 
alone  possible. 


237 


CHAPTER  XXI 

A  PROTECTION  GRADED  ACCORDING  TO  THE 
NATIONAL  VALUE  OF  INDUSTRIES 

HAVING    seen  that  Protection  is    necessary  for    the 
economic  development  of  every   nation,  and   at   the 
same  time  conducive  to  the  peace  of  the  world  through 
a   reduction   in   that   international    competition   which   most 
affects  the  well-being  of  each  country,  i.e.,  in  the  products  of 
skilled   industries,   we    will  pass   to   a   consideration   of    the 
principles    and    purpose    which    must    govern    any    genuine 
economic  scheme  of  Protection. 

We  referred  in  the  previous  chapter  to  the  possibility  of 
Protection  through  prohibition  and  rationing,  yet,  although 
this  may  ultimately  prove  the  right  solution,  existing  organiza- 
tions are  not  ready  for  it,  but  are  more  suitable  for  dealing 
with  a  variation,  more  or  less,  in  the  usual  method  of  exacting 
import  duties  or  customs.  The  proper  purpose  of  Protection 
being  to  stimulate  the  production  of  wealth,  and  not  to  obtain 
revenue,  it  is  obvious  that  the  obstacles  to  importation  should 
be  greater  the  higher  the  national  value  of  the  industry  in 
question,  for  if  the  products  of  foreign  skilled  labour  be  allowed 
entry,  the  home  producer  loses  his  certainty  of  selling  and 
thus  his  incentive  to  increase  his  output. 

It  follows,  therefore,  that  a  flat  rate  of  Protection,  whether 
per  weight,  volume,  or  ad  valorem,  is  fundamentally  wrong,  and 
that  the  import  duties  on  any  article  should  follow  a  sliding 
scale,  according  to  the  national  value  of  the  industry  producing 
it.  We  discussed  the  latter  question  fully  in  Chapter  X,  and 
proved  that  this  value  was  not  a  matter  of  opinion,  but  could 
be  measured  by  adding  to  the  employers'  net  profits  all  wages 
paid  in  excess  of  the  living  wage,  and  dividing  by  the  number 
238 


GRADED    SYSTEM    OF    PROTECTION 

of  workers.  Although  such  a  method  of  calculation  might, 
in  home  trade,  allow  a  benefit  to  a  group  of  less-skilled  workers 
at  the  expense  of  one  more-skilled,  until  such  time  as  payment 
according  to  skill  be  recognized,  in  the  case  of  foreign  trade 
it  affords  a  true  indication  of  the  nation's  wealth-increment 
through  export. 

Thus,  when  we  import  the  products  of  foreign  skilled 
labour  or  of  industries  yielding  the  highest  return  per  worker, 
which  we  should  have  produced  ourselves,  we  lose  this  wealth- 
increment,  while  when  we  export  such  products  we  gain  it,  so 
that  a  Protection  graded  according  to  the  national  value  of 
industries  will  afford  the  most  help  to  the  best,  and  will  there- 
fore benefit  them  and  the  whole  nation  at  the  same  time,  for, 
as  we  know,  the  nation's  material  welfare  depends  upon  the 
quality  of  its  industries. 

It  is  clear  that  any  other  form  of  Protection  is  unsound, 
and  if  it  leads  to  the  bolstering  up  of  low-class  industries  it 
fails  in  its  primary  purpose,  the  encouragement  of  national 
wealth-production.  That  this  has  occurred  but  little  in  practice 
under  existing  haphazard  systems  of  Protection  is  due  to  the 
fact  that  in  spite  of  the  economists,  in  spite  of  acceptance  by 
the  thoughtless  of  the  law  of  supply  and  demand,  sane  humanity 
has  generally  recognized  that  payment  should  vary  according 
to  skill,  whence  labour  has  flocked  to  the  skilled  industries 
whenever  these  were  kept  available  through  being  protected. 

In  truth,  any  form  of  Protection,  although  it  may  lead  to 
abuses,  is  preferable  to  none,  so  long  as  it  does  indeed  protect, 
because  by  its  aid  the  nation  can  voluntarily  drop  its  unskilled 
and  develop  its  skilled  industries,  whereas  with  free  imports 
the  foreign  product  of  skilled  labour  may  undersell  the  home 
product,  driving  workers  into  ever  less-skilled  industries,  the 
products  of  which  the  nation  may  be  compelled  to  exchange 
for  foreign  imports.  If  the  home  market  be  left  open  to  the 
products  of  foreign  skilled  labour,  these  will  undoubtedly  enter 
it,  for  their  export  most  benefits  the  foreign  nation,  and  a 
nation  of  equal  civilization  should  not  attempt  to  compete  in 
its  neighbours'  own  home  market  in  industries  which  yield 
little  national  wealth. 

239 


THE  REAL  WEALTH  OF  NATIONS 

The  truth  of  the  foregoing  is  so  obvious  that  the  failure  to 
realize  it  would  be  quite  inexplicable  were  it  not  for  the 
preposterous  economic  fallacies  current  throughout  the  world. 
If  value  be  due  to  demand,  if  carrying  goods  to  those  that 
want  them  increases  their  value,  the  most  unskilled  labour 
produces  wealth,  there  is  no  virtue  in  skill,  and  it  is  a  flight 
of  imagination  to  believe  that  the  nation's  welfare  depends 
upon  its  skilled  industries. 

An  unwholesome  economic  diet  has  caused  the  manual 
workers  to  choose  the  wrong  leaders,  practically  none  of  whom 
are  skilled  producers,  and  only  when  they  realize  that  the  value 
of  a  man  to  a  nation  depends  upon  the  skill  and  energy  which 
he  applies  to  production  or  labour-saving,  and  not  upon  whether 
his  hands  are  dirty  or  clean,  will  they  come  to  recognize  econo- 
mic truths  and  their  rightful  advisers. 

The  leaders  in  our  New  Civilization  will  control  the  nation's 
industries,  each  year  they  will  examine  their  quality  and  see 
that  those  of  the  highest  value  are  developed,  with  the  result 
that  their  stability  will  correspond  to  their  national  im- 
portance. It  will  then  be  appreciated  that,  given  a  higher 
standard  of  education,  this  cannot  be  better  utilized,  from  an 
economic  standpoint,  than  in  the  nation's  most  skilled  indus- 
tries, and  that  the  preservation  of  the  home  market  for  such 
industries  is  as  vital  for  the  development  of  education  as  for 
that  of  the  higher  industries  themselves. 

For  instance,  a  longer  training  and  higher  salaries  for 
teachers,  as  indeed  all  general  improvements,  necessitate  a 
greater  wealth-production,  so  that  Mr  H.  A.  L.  Fisher  was 
wrong  in  declaring  that  no  industries  are  sacrosanct.  Mr 
Fisher's  further  dictum  that  "  Industries  are  made  for  educa- 
tion, not  education  for  industries,"  is  equally  fallacious,  for, 
like  a  self-taught  man,  skilled  industries  can  arise  through 
individuals  without  extraneous  education,  while  a  higher  educa- 
tion for  the  people  depends  for  its  possibility,  progress,  and 
material  application  primarily  upon  the  said  industries. 

Educational  facilities  supply  only  the  foundation  ;  a  man's 
real  education  occurs  in  his  work,  which,  if  useful,  is  productive, 
i.e.,  again  generally  used  in  or  in  connexion  with  industry. 
240 


GRADED    SYSTEM    OF    PROTECTION 

This  may  not  be  apparent  to  people  brought  up  to  believe  that 
a  man's  duty  consists  in  obtaining  his  living  in  the  easiest 
possible  way,  yet  while  the  term  '  a  nation  of  lawyers '  sounds 
eminently  respectable,  and  their  education  certainly  does  not 
equip  them  for  industry,  all  they  have  is  derived  from  industry. 

If,  then,  the  home  market  for  the  products  of  skilled  labour 
be  preserved,  and  every  new  or  better  industry  be  immediately 
protected,  the  highest  possible  number  of  skilled  workers  will 
already  be  employed,  unless  it  is  possible  also  to  export  such 
products,  in  which  case  this  number  will  grow.  Success  in 
exporting,  however,  will  depend  upon  efficiency,  and  not  upon 
the  amount  of  Protection,  provided  this  suffices  to  preserve 
the  home  market,  and  the  nation  will  gain  owing  to  the  high 
value  of  goods  it  must  receive  per  worker  in  exchange  for  its 
exports.  Indeed,  so  much  will  it  gain  that  the  question  forces 
itself  upon  us,  whether  it  pays  a  nation  to  stimulate  artificially 
the  exports  of  the  products  of  skilled  labour  or  to  '  bonus  '  such 
an  industry. 

At  first  sight  this  may  appear  absurd,  and  it  would  be  so 
were  industries  all  equally  productive  of  wealth,  but  just  as  a 
longer  period  for  education,  scholarships,  etc.,  is  justifiable 
in  the  case  of  a  promising  boy,  so  is  the  transfer  of  wealth  to  an 
industry  which  in  return  therefor  will  yield  still  more  wealth. 
Of  course,  if  the  individuals  concerned  in  the  industry  were 
able  to  retain  all  the  wealth-increment  to  themselves,  the  rest 
of  the  population  would  have  good  ground  for  complaint,  but 
we  know  that  in  any  civilized  community  this  is  impossible, 
and  that  all  derive  benefit  from  an  increase  in  the  average 
wealth-production. 

If  therefore  the  soundness  of  the  principle  of  giving  a  bonus 
to  an  industry  be  admitted,  it  only  remains  to  consider  the 
amount  of  assistance  which  should  be  given,  and  this  obviously 
depends  upon  the  wealth-increment  per  worker  engaged  in  it 
compared  with  that  realized  in  the  next  lower  industry  making 
goods  for  export.  For  instance,  comparing  the  English  textile 
trade,  seventy-five  per  cent,  of  which  is  devoted  to  export 
(vide  Mr  J.  Smethurst,  of  the  Cotton  Spinners'  Federation), 
in  which  the  average  weekly  earninga  in  1906,  according  to 

24I 


THE  REAL  WEALTH  OF  NATIONS 

a  pamphlet  entitled  The  Nation's  Income*  were  only  175.  6d. 
per  week,  with,  say,  the  metal,  shipbuilding,  and  engineering 
trades,  in  which  the  average  was  275.  4d.  per  week,  a  bonus 
not  exceeding  gs.  per  head  to  stimulate  the  export  output  of 
the  latter  and  so  enable  them  to  absorb  the  lower-waged 
textile  workers  would  benefit  the  whole  nation  by  increasing 
the  total  wealth  produced.  True,  the  other  workers  would 
have  to  contribute,  but  their  contribution  would  not  merely 
return  to  them  indirectly  via  taxation,  but  directly  by  the 
appreciation  in  the  value  of  the  money  in  their  pockets. 

We  have  ignored  here  the  question  of  the  employer's  profit, 
yet  this  would  obviously  strengthen  our  argument,  the  profit 
per  worker  employed  being  generally  higher  the  more  skilled 
he  is.  If  not,  such  a  worker  would  be  better  off  at  the  expense 
of  his  employer,  i.e.,  the  total  wages  paid  compared  with  the 
profits  would  be  more  favourable  to  the  workers. 

Further,  if  we  artificially  stimulate  the  skilled  industries, 
the  textile-workers  thrown  out  of  employment  will,  so  soon 
as  they  have  been  taught,  be  able  to  enter  a  better  industry 
in  which  over-production,  unemployment,  etc.,  are  much  less 
frequent.  Thus,  Protection  for  skilled  industries,  far  from 
permitting  the  nation  to  slack,  incites  the  leaders  of  labour  to 
wake  up  and  insist  on  the  development  for  export  of  those 
industries  which  benefit  not  only  their  own  workers  but  the 
whole  community. 

And  when  the  export  of  the  products  of  unskilled  labour 
is  prevented,  and  competition  for  profit  with  sweated  labour 
as  the  pawns  is  restricted,  a  mass  of  labour  will  be  set  free  for 
the  further  development  of  wealth-producing  industries,  or  the 
betterment  of  the  conditions  of  living  of  the  least  prosperous 
workers. 

Restriction  of  international  competition  in  the  products 
of  unskilled  labour,  which  will  follow  a  reduction  in  such 
exports,  and  in  the  products  of  skilled  labour  which  would 
follow  Protection,  will  not  merely  benefit  one  nation,  but  all 
nations,  and  consequently  increase  not  only  national,  but 
international,  or  world,  wealth.  Moreover,  the  sanctity  of 

1  By  Herbert  G.  Williams  (London  :  The  British  Commonwealth  Union). 
242 


GRADED    SYSTEM    OF    PROTECTION 

every  nation's  skilled  industries  being  recognized,  their  profit- 
able working  will  be  assured,  and  universal  profit-sharing 
will  become  immediately  practicable,  particularly  in  those 
industries  from  which  the  amount  divisible  per  worker  attains 
its  maximum.  Thus,  recognition  of  the  justice  of  a  graded 
system  of  Protection  is  essential  both  to  the  peace  and  pros- 
perity of  the  human  race. 


24.3 


CHAPTER   XXII 

A  REAL   'INTERNATIONALE' 

THE  reduction  in  international  trade  and  competition 
indicated  in  the  preceding  chapter  as  the  result  of  a 
graded  system  of  Protection,  or  indeed  of  any  universal 
Protection,  may  awaken  qualms  in  the  mind  of  the  reader — • 
and  it  would  doubtless  deplete  the  bank  balances  of  many 
interested   parties — but   we   are   afraid   neither   of   the  word 
'  Protection  '  nor  of  its  effect  upon  the  world. 

There  must  be  no  compromise  on  so  vital  a  matter.  We 
must  erase  the  illusory  picture  impressed  upon  our  plastic 
minds  of  the  teeming  harbours  of  the  world,  the  endless  pro- 
cession of  mighty  ships,  all  intent  on  carrying  goods  to  those 
that  want  them,  on  saving  men  from  starvation  or  from 
exploitation  by  their  own  brothers,  and  we  must  realize  that 
those  who,  across  the  ocean,  discern  the  approach  of  such 
welcome  co-operation  have  but  seen  a  mirage  ;  yea,  what 
reaches  them  may  be  competition  for  their  own  kith  and  kin. 
These  ships — and  were  ever  such  stately  things  put  to  so 
ignoble  a  use  ? — are  the  modern  equivalents  of  the  giant  horse 
used  at  the  siege  of  Troy,  and,  despite  their  outward  seeming, 
bear  in  their  holds  the  destruction  of  communities.  The  flag 
at  the  main-mast  spells  co-operation,  but  when  moored  along- 
side the  wharves  the  flag  of  competition  is  run  up. 

We  have  emphasized  the  necessity  for  co-operation  for 
the  production  of  wealth  among  the  inhabitants  of  any  one 
country,  and  it  is  equally  essential  that  nations  should  co- 
operate if  an  advance  in  their  civilization  is  to  result  from 
international  intercourse.  There  is,  however,  this  distinction, 
that  whereas  a  nation  can  compel  its  people  to  co-operate, 
it  cannot  compel  another  nation  to  do  so,  except  by  war, 
244 


A  REAL  INTERNATIONALE 

which  in  such  a  cause  is  immoral,  and  therefore  international 
co-operation  must  depend  upon  the  higher  development  of 
man's  moral  and  economic  education. 

It  is  undeniable,  however,  that  such  haphazard  inter- 
national co-operation  as  exists  does  not  arise  from  praiseworthy 
motives,  and  that  when  it  is  not  limited,  as  it  ought  to  be,  to 
the  exchange  of  those  commodities  which  both  parties  cannot 
efficiently  produce,  it  becomes  competition.  Further,  as  even 
in  existing  co-operative  trade  there  is  no  thought  of  a  fair  rate 
of  exchange,  such  co-operation  comes  dangerously  near  to 
international  exploitation. 

Indeed,  not  merely  is  all  international  trading  carried  on 
at  present  solely  for  profit,  but  the  profit  is  that  of  the  indi- 
vidual, it  may  be  at  the  expense  of  a  mass  of  his  fellow-country- 
men, and  the  benefit  of  the  nation  is  not  considered. 

We  have  referred  in  previous  chapters  to  the  delusion  that 
cheap  imports  necessarily  benefit  the  buyers,  who  forget  that 
they  too  have  their  labour  to  sell.  If  a  people  have  recognized 
the  importance  of  co-operation  and  fair  dealing  among  them- 
selves, it  is  indeed  extraordinary,  and  a  confession  of  moral 
inferiority,  if  they  look  toward  another  nation  for  rescue, 
not  from  shortage,  but  from  high  prices.  The  deliverer  will 
have,  of  course,  no  altruistic  intentions.  Indeed,  it  is  merely 
a  foreign  individual  who,  for  personal  gain,  often  at  the  expense 
of  his  own  fellow-countrymen,  comes  as  a  knight  in  shining 
armour  to  people  among  whom  he  may  not  have  a  single 
personal  acquaintance. 

If  the  reader  thinks  that  we  have  dwelt  unduly  on  this 
topic  we  would  assure  him  that  we  have  only  followed  to  their 
logical  conclusion  the  ideas  of  many  so-called  sociologists. 
Thus,  Mr  G.  H.  Putnam,  an  American  advocate  of  Free  Trade, 
writes,  "  It  is  always  a  crime,  and  it  is  always  a  blunder,  to 
make  unnecessary  additions  to  the  cost  of  the  things  that  are 
needed."  He  imagines  the  foreign  merchant  rushing  to  the 
rescue  of  a  community  and  accepting  payment  in  money, 
whereas  we  know  that  payment  must  be  made  by  labour,  that 
Protection  has  no  effect  whatever  on  the  real  cost  of  the  goods 
received  or  those  manufactured  for  export,  and  that  by 

245 


THE  REAL  WEALTH  OF  NATIONS 

allowing  of  the  development  of  skilled  industries  it  actually 
reduces  the  amount  of  labour  necessary  to  pay  for  them. 

Real  co-operation  implies  the  profit  of  all  parties  to  the 
transaction,  whether  it  be  among  individuals  or  between 
nations,  for  under  it  neither  an  individual  nor  a  nation  can  be 
permitted  to  benefit  at  the  expense  of  another,  and  this  is  even 
more  important  in  the  latter  case  than  in  the  former,  for  the 
following  reason. 

A  people  living  under  one  Government  have  to  contribute 
to  its  cost  according  to  their  ability,  but  not  equally,  so  that 
the  rich  are  compelled  to  help  the  poor,  the  producer  of  wealth 
to  part  with  it  sooner  or  later,  and  consequently,  although 
there  is  no  justification  for  unequal  bargains,  the  loser  may 
at  least  hope  to  recover  some  of  his  loss,  if  only  indirectly.1 
On  the  other  hand,  and  we  are  of  course  alluding  not  to  isolated 
transactions  but  to  a  permanent  inequality,  it  is  quite  obvious 
that  when  one  nation  makes  an  unfavourable  exchange  with 
another  there  is  no  chance  of  recovery  and  the  loss  is  permanent. 
Consequently  in  co-operation  between  nations  we  must  look 
beyond  the  individual's  profit  and  consider  the  labour  quality, 
i.e,,  where  articles  which  both  nations  of  equal  civilization  can 
produce  are  concerned  we  must  forbid  underselling  in  the 
products  of  skilled  labour. 

For  instance,  it  has  been  said  that  Britain  cannot  produce 
the  Ford  car  at  a  price  to  compete  with  America  in  the  home 
market,  firstly  because  the  United  States  market  is  so  much 
larger,  and  secondly  because  British  manufacturers  are  less 
efficient,  but  the  former  is  no  reason  for  adding  Britain's  market 
to  America's,  and  if  the  latter  statement  be  true  Britain  would 
probably  have  to  pay  for  the  Ford  cars  with  the  product  of  less 
efficient  labour,  whence  they  will  cost  her  even  more  in  labour 
than  if  she  had  produced  them  herself.  Thus,  unless  Britain 

1  That  this  is  true  is  illustrated  by  a  White  Paper  issued  by  the  British 
Board  of  Inland  Revenue  in  1919  showing  that  of  the  total  income-tax  and 
super-tax,  estimated  at  £338,300,000  for  1919-20,  £163,393,000  is  derived 
from  59,100  persons  with  an  income  of  over  £2,500  per  annum,  or  an  average 
contribution  of  £2,764  each,  £65,484,000  is  derived  principally  from  various 
companies,  and  £100,942,400  from  3,346,900  people  with  incomes  under  £2,500 
per  annum,  or  an  average  of  less  than  £33  per  head. 
246 


A  REAL  INTERNATIONALE 

is  prepared  to  admit  that  her  people  are  less  efficient  and  less 
well  educated,  she  must  make  the  Ford  car,  or  some  British 
model,  or  go  without,  for  no  one  could  maintain  that  this  is  an 
industry  for  which  the  British  are  not,  or  ought  not  to  be,  well 
suited. 

On  the  other  hand,  it  is  evident  that  the  successful  com- 
petition of  the  American  car  would  benefit  the  United  States 
at  Britain's  expense,  and  the  result  represents  therefore  the 
antithesis  of  co-operation,  for,  although  nations  were  not 
intended  by  Nature  to  be  equally  rich,  and  could  never  be  so 
unless  all  countries  and  all  people  were  identical,  no  country 
need  be  poorer  than  its  natural  resources  combined  with  the 
quality  of  its  people  dictate.  Indeed,  the  material  wealth  of 
a  nation  is  measured  not  by  the  number  of  its  millionaires, 
but  by  its  annual  wealth-production  per  head  of  its  population, 
or  the  quality  of  its  industries. 

Up  to  the  present  no  attempt  has  been  made  at  inter- 
national co-operation  for  the  production  and  exchange  of 
wealth,  presumably  because  the  principles  we  have  enunciated 
have  not  been  understood,  but  we  have  seen  the  formation 
of  the  '  Internationale.'  The  members  of  this  association, 
however,  aim  not  at  increasing  the  well-being  of  the  world 
but  their  own,  and  at  decreasing  the  production  of  wealth, 
whence  it  is  obvious  that  their  intention  is  to  seize  the  wealth 
of  others. 

Who  are  the  members  of  the  Internationale  ?  Apart 
from  its  leaders,  many  of  whom  are  not  workers  at  all,  and  a 
number  of  political  sycophants,  the  association  is  composed 
of  the  manual  workers,  and  not  even  all  of  these.  The  skilled 
manual  workers  do  not  appreciate  their  own  importance  and 
have  made  no  attempt  to  assert  themselves,  wherefore  this 
association  is  run  solely  by,  and  in  the  interests  of,  the 
unskilled  manual  workers.  Thus,  the  object  of  the  Inter- 
nationale is  to  transfer  wealth  from  those  who  have  created 
it  (for  although  its  intended  victims  include  a  number  who  have 
stolen  it,  that  is  immaterial,  because  the  Internationale  makes 
no  distinction)  to  the  unskilled  workers  of  the  world,  the 
majority  of  whom  are  merely  wealth-handlers,  transport- 

247 


THE  REAL  WEALTH  OF  NATIONS 

workers,  miners,  etc.,  who,  as  we  know,  do  not  produce  wealth 
at  all. 

We  should  be  the  last  to  suggest  that  the  present  distri- 
bution of  wealth  is  equitable,  but  it  is  only  by  altruistic  educa- 
tion that  it  can  be  improved,  and  the  real  wealth-producers 
will  ultimately  realize  their  power  (aye,  even  if  it  came  to  war, 
brains  will  win)  and  refuse  to  hand  over  compulsorily  what 
they  might  have  been  prepared  to  yield  to  persuasion. 
Obviously,  the  skilled  by  hand  and  brain  will  decline  to  exert 
themselves  if  they  are  to  be  despoiled,  and,  brain-work  being 
far  more  exhausting  than  ordinary  manual  labour,  much  of 
which  is  healthy,  they  will  work  with  less  interest  and  ever 
less  hours,  so  that  the  wealth  of  the  world  will  diminish,  and 
therewith  all  chance  of  that  amelioration  of  its  condition  which 
the  proletariat  anticipate.  Of  course,  many  of  these  misguided 
economists  appear  to  think,  among  other  delusions,  that 
existing  wealth,  as  castles,  motor-cars,  pictures,  etc.,  can  be 
divided  among  the  poor,  and  while  it  is  undeniable  that 
jewellery  can  be  distributed,  we  doubt  whether  that  would 
bring  much  happiness  or  well-being  in  its  train.  Indeed, 
these  illusionists  overlook,  in  the  search  after  foolish  luxuries, 
the  real  objectives,  prevention  of  labour-waste,  and  increased 
efficiency  in  the  production  of  necessaries,  whereby  alone 
all  can  have  simultaneously  more  possessions  and  more 
leisure. 

It  is  true  that  the  declared  policy  of  the  Internationale  is 
to  prevent  competition,  or  what  its  members  term  "  the 
exploitation  of  the  proletariat  by  the  capitalist  "  (as  though 
either,  and  not  skill  and  brains,  produced  all  wealth),  and  their 
belief  that  this  will  follow  from  a  universal  eight-hour,  or 
shorter,  day  proves  that  they  do  not  understand  the  elementary 
principles  of  international  co-operation. 

For,  assuming  that  an  eight-hour  day  be  agreed  upon,  and 
all  employers  abolished,  or  industry  syndicalized,  this  will  not 
prevent  the  workers  of  one  nation  underselling  those  of  another 
in  industries  which  most  benefit  the  latter,  whence  competition 
with  its  waste  of  labour  will  be  as  rampant  as  before.  Thus, 
unrestricted  trade  between  nationst  which  is  the  policy  of  the 
248 


A  REAL  INTERNATIONALE 

Internationale,  will  ensure  a  continuance  of  competition,  and 
prevent  that  co-operation  which,  necessitating  as  it  does 
Protection  for  the  skilled  industries  of  every  nation,  alone  can 
benefit  the  proletariat. 

Nationality  being  indestructible,  the  destiny  of  the  manual 
workers  is  inseparable  from  that  of  their  own  countrymen 
with  whom  they  live  and  work,  whether  they  desire  it  or  no, 
and  does  not  lie  with  that  of  their  class  in  other  lands,  and  if 
a  man  or  a  set  of  men  cannot  live  in  amity  with  neighbours, 
the  remedy  is  emigration.  The  present  policy  of  the  Inter- 
nationale is  anti-national,  and  will  lead  to  universal  civil  war, 
which,  whatever  the  result,  will  no  more  promote  a  world 
peace  or  the  well-being  of  humanity  than  an  international 
sex-war,  or  an  alliance  of  children  against  parents.  To  Karl 
Marx  is  generally  attributed  responsibility  for  these  ideas  by 
the  trembling  capitalists,  yet  his  gospel  is  only  a  logical  appli- 
cation of  the  false  economic  theories  in  which  they  themselves 
believe,  for  if  value  be  due  to  demand,  and  wealth  to  trade  or 
to  carrying  goods  to  those  that  want  them,  wealth  is  indeed 
derived  from  unskilled  labour  and  the  capitalist  and  bourgeois 
are  robbers  of  the  unskilled  workers  to  whom  only  it  belongs. 
Recognition  of  the  fact  that  all  wealth  is  due  to  brains,  skill, 
or  mind,  and  neither  to  capital  nor  labour,  is  clearly  essential 
to  the  continued  existence  of  ordered  society  in  face  of  the 
growing  threats  with  which  it  is  menaced. 

Professor  Edwin  Cannan  in  his  Wealth  naively  asks  whether 
Economics  is  the  one  science  in  which  no  progress  has  been 
made,  and  the  answer  is  in  the  affirmative,  for  the  theory  that 
wealth  is  due  to  trade  is  fundamentally  false,  and  thus  the 
whole  structure  built  thereon  is  misbegotten.  The  Jevonian 
law  of  supply  and  demand  upon  which  it  rests,  or,  as  it  is 
expressed  by  Professor  A.  Marshall  to-day,  "  Value  is  governed 
by  the  relation  of  demand  to  aggregate  costs  of  production, 
the  principal  of  these  being  labour  by  hand  or  head,"  is  as 
absurd  as  the  claim  of  Karl  Marx  that  because  wealth  is  due 
to  labour,  labour  is  the  measure  of  wealth,  for  in  the  one  case 
an  infinite  demand,  and  in  the  other  an  infinite  waste  of  labour, 
can  create  an  infinite  value  for  a  worthless  article  ! 

249 


THE  REAL  WEALTH  OF  NATIONS 

On  the  other  hand,  having  found  a  unit  of  value,  the  daily 
necessaries  of  life  of  the  average  man,  which  is  independent 
both  of  demand  and  the  amount  of  labour  expended  in  its 
production,  and  realizing  that  it  is  only  the  luxury  value 
which  is  dependent  upon  demand,  as  indeed  no  one  can  measure 
pleasure,  we  are  not  faced  with  the  problem  of  extracting 
sunbeams  from  cucumbers,  or  reconciling  the  impossible. 
Further,  wealth  being  now  measurable,  it  becomes  evident 
that  man's  ability  to  produce  it  is  due  to  his  brain  or  skill, 
and  consequently  the  false  claims  of  the  proletariat  are 
exploded,  and  the  real  builders  of  civilization  recognizable. 

A  League  of  Nations  for  the  prevention  of  future  wars 
may  be  a  magnificent  conception,  but  only  if  its  foundations 
be  truly  laid  can  its  purpose  be  realized.  As  its  name  implies, 
it  recognizes  the  inviolability  of  every  nation,  yet  even  its 
most  ardent  supporters  pursue  that  mirage  of  universal  and 
unrestricted  trade  which  we  have  shown  must  lead  to  the  most 
intense  economic  war,  in  which  the  most  materialistic  nation, 
or  the  one  with  the  lowest  standard  of  living,  will  triumph, 
and  to  a  denial  of  the  right  of  small  nationalities  to  an  inde- 
pendent economic  existence. 

Loose  thinking  by  untrained  minds  has  led  to  the  hallu- 
cination that  a  nation  which  is  undersold  has  only  itself  to 
blame,  and  must  be  less  efficient,  yet,  assuming  equal  efficiency, 
it  is  evident  that  a  large  nation  is  able  to  undersell  a  small  one 
because  of  its  larger  home  market.  A  nation's  preference  for 
happiness  to  a  mere  striving  after  material  efficiency  is  also 
no  justification  for  robbing  it  of  its  best  industries. 

A  similar  lack  of  logic  is  responsible  for  the  nebulous 
argument  that  a  nation  should  be  ready  to  resign  an  industry 
for  which  another  is  better  suited,  for  this  ignores  both  the 
fact  that  it  might  nevertheless  be  the  former's  best  industry, 
and  that  there  is  a  large  number  of  industries  for  which  many 
countries  are  suitable,  even  if  they  are  not  quite  equally  so. 
It  is  obvious  that  if  the  varying  national  value  of  industries 
be  realized,  no  nation  should  surrender  its  best  ones,  and 
that  the  prevention  of  economic  war  can  be  assured  by  con- 
ceding to  each  nation  the  right  to  refuse  importation  of 
250 


A   REAL  INTERNATIONALE 

commodities  in  the  home  production  of  which  a  high  value 
per  worker  is  realizable. 

Thus,  if  a  desire  for  wealth  be  a  cause  of  war,  the  League 
of  Nations  must  recognize  that  a  nation  cannot  be  permitted 
to  obtain  wealth  at  the  expense  of  another,  and  must  therefore 
be  forbidden  to  steal  the  latter's  best  industries,  and  that  not 
universal  Free  Trade,  but  Protection  by  each  nation  of  its 
skilled  industries  and  non-interference  with  production  will 
alone  ensure  the  peace  of  the  world. 

Further,  just  as  one  nation  may  refuse  to  accept  goods 
made  by  another,  so  it  is  justified  in  refusing  admission  to 
aliens,  or  in  restricting  immigration.  Nevertheless,  it  is  obvious 
that  a  nation  benefits  through  an  increase  in  the  number  of  its 
wealth-producers,  and  history  shows  how  the  migration  of 
skilled  men  from  one  country  to  another  has  enriched  the  latter. 

Conversely,  a  country  is  poorer  by  the  loss  of  its  wealth- 
producers,  and  although  it  may  be  described  as  interference 
with  the  liberty  of  the  subject,  a  man  should  not  be  free  to 
desert  his  homeland  when  and  how  he  likes.  Unrestricted 
liberty,  except  that  of  the  mind,  is  incompatible  with  civiliza- 
tion, and  as  the  youth  must  of  necessity  live  at  the  expense 
of  producers  until  he  himself  is  old  enough  to  work,  his 
departure  before  he  has  made  some  return  is  not  to  be 
justified. 

That  the  justice  of  this  has  not  been  appreciated  arises 
from  our  habit  of  thinking  in  terms  of  money,  for  although  a 
lad's  father  pays  for  his  upbringing,  the  money  he  spends  has 
acquired  value  from  the  work  of  the  producers.  It  is  true  that 
if  the  married  man  works  harder  than  the  unmarried,  he  might 
claim  to  have  supported  his  son,  yet  not  merely  is  this  usually 
not  the  case,  and  it  would  be  grossly  unfair  if  it  were,  but  the 
son  would  then  be  under  an  obligation  to  his  father.  Indeed, 
we  showed  in  Chapter  X  that  the  married  man  ought  to  receive 
extra  wages  to  enable  him  to  purchase  the  necessaries  for  each 
and  all  his  children,  and  under  these  conditions  the  son's 
obligation  is  apparent,  and  toward  the  State  rather  than  the 
father.  Thus,  restrictions  on  emigration  correspond  to  those 
on  exports,  but  whereas  the  latter,  if  the  products  of  sweated 

251 


THE  REAL  WEALTH  OF  NATIONS 

or  unskilled  labour,  must  be  prohibited  altogether,  the  former 
may  be  permitted  on  certain  terms,  and  for  special  reasons. 

The  so-called  problem  of  over-population  is  often  discussed, 
although  so  far  it  is  no  more  serious  than  that  of  over-produc- 
tion, and  where  there  is  room  for  all  to  live  under  healthy 
conditions,  and  the  community  can  produce  sufficient  neces- 
saries for  all,  it  will  not  arise.  Man  is  for  ever  increasing 
the  efficiency  of  his  production,  and  therefore  providing  for  the 
growth  of  population.  Nevertheless,  in  certain  countries  the 
question  of  over-population  will  appear  some  day,  and  Nature 
will  not  solve  it,  her  law  of  the  survival  of  the  fittest  applying 
solely  to  the  animal  kingdom.  Improvements  in  the  con- 
ditions of  living  and  the  abolition  of  war — by  increasing  the 
chances  of  life — will  doubtless  hasten  the  day  of  its  arrival. 

Last,  but  not  least,  we  must  consider  the  connexion  between 
Economics  and  religion.  Many  children  have  been  shocked 
by  the  divergence  between  practice  and  precept,  between 
what  they  hear  on  Sunday  and  observe  during  the  week,  and 
how  little  our  daily  life  is  affected  by  religion  was  demon- 
strated in  an  eloquent  and  sarcastic  sermon  we  once  heard 
on  "  Humility  as  a  commercial  asset."  Were  there  indeed  no 
wealth  in  the  world,  and  man  merely  existed,  religion  need 
control  only  his  moral  duties  toward  God  and  his  fellows,  but 
as  an  appreciation  of  wealth  is  concomitant  with  the  evolution 
of  man,  religion  cannot  ignore  his  material  obligations,  or  the 
laws  of  Economics. 

We  make  bold  to  say  that  herein  lies  the  explanation  of  the 
failure  of  Christianity.  A  man  of  aggressive  moral  rectitude 
provokes  our  distrust,  so  much  so  that  his  example  is  less  than 
useless,  and  this  is  not  surprising,  for  such  men  have  often  been 
observed  to  be  hard  in  their  dealings  with  their  fellow-men, 
and  even  more  eager  than  the  average  man  to  amass  that 
wealth  which,  according  to  their  professions,  they  should 
despise  and  share  with  the  less  fortunate.  No  wonder  the 
ribald  mock  at  the  fortunes  left  by  the  so-called  righteous 
men,  many  of  whom,  so  far  as  is  discernible,  have  merely 
enriched  themselves  at  the  expense  of  others,  and  have  in  no 
way  added  to  the  material  or  moral  wealth  of  the  world. 
252 


A  REAL  INTERNATIONALE 

We  read  that  a  man  dies  "  full  of  riches  and  honour,"  yet 
we  know  that  his  wealth  may  be  a  sign  of  dishonour,  and  that 
there  is  an  essential  and  enduring  distinction  between  amassing 
wealth  and  producing  it.  The  man  who  produces  wealth  for 
others  may  have  none  himself,  and  if  the  man  who  seizes 
wealth,  thereby  impoverishing  his  fellows,  be  respected,  it  is 
clear  that  both  our  obligation  to  the  former  and  the  degrada- 
tion of  the  latter  are  quite  unrecognized.  All  honour  to  those 
who  produce  wealth  for  their  own  and  future  generations,  and 
are  ready  to  share  it  with  their  fellow-men,  yet  while  this  was 
actually  recognized  by  the  ancient  civilizations,  which  lauded 
and  rewarded  the  arts,  to-day  the  world's  benefactors  are 
unsung,  and  the  handler  of  wealth  is  looked  up  to  and  admired. 
In  our  present  age  the  fundamental  truths  of  Economics  are 
hidden  beneath  a  mountain  of  falsehood,  whereas  two  thousand 
years  ago  they  were  not  unrecognized.  Possibly  this  accounts 
for  the  absence  of  economic  guidance  from  the  New  Testament. 

So  long,  however,  as  religion  does  not  distinguish  the  true 
benefactors  of  mankind  from  the  sham,  it  is  hopeless  to  expect 
a  world  of  men  to  reflect  its  teachings,  and  its  dissociation  from 
Economics  and  the  latter's  connexion  with  politics  is  the  root 
of  our  present  sham  civilization,  for  neither  the  laws  of  Nature 
nor  of  life  are  subject  for  debate,  nor  a  matter  of  opinion. 

But  religion  cannot  ignore  Economics  even  if  it  would,  for 
the  commandment  "  Thou  shalt  not  steal  "  is  common  to 
every  faith,  and  represents  the  first  step  in  the  ascent  of  man. 
To  steal  does  not  mean  merely  to  take  another  man's  property, 
but  to  take  it  by  force  (robbery),  or  stealth,  and  further  to  leave 
nothing  in  exchange  therefor,  for  alternatively  the  theft  might 
be  beneficial  to  the  robbed.  If,  then,  stealing  means  to  take 
and  give  nothing  in  return,  it  also  includes  giving  a  fraction 
more  than  nothing,  and  consequently  to  give  a  less  value  than 
one  receives  is  also  stealing. 

To  take  by  stealth  is  inseparable  from  theft.  It  may  be 
said  that  robbery  by  consent  is  not  robbery  at  all,  but  any  ex- 
change to  effect  which  there  has  been  constraint  upon  one  party 
and  in  which  the  other  receives  a  greater  value  than  he  gives  is 
indistinguishable  from  stealing,  wherefore  the  law  of  supply 

253 


THE  REAL  WEALTH  OF  NATIONS 

and  demand  which  '  justifies  '  a  man  in  demanding  the  highest 
price  he  can  get  for  what  he  holds,  regardless  of  its  true  value 
or  cost,  and  the  use  of  force,  which  he  exercises  in  the  case  of 
necessaries,  or  deceit  on  other  occasions,  is  consequently  a 
direct  contradiction  of  the  commandment  "  Thou  shalt  not 
steal." 

This  commandment  is  not  the  only  one  which  expresses  an 
economic  law,  for  "  Thou  shalt  not  covet  thy  neighbour's  house, 
thou  shalt  not  covet  thy  neighbour's  wife,  nor  his  man-servant, 
nor  his  maid-servant,  nor  his  ox,  nor  his  ass,  nor  any  thing  that 
is  thy  neighbour's,"  implies  that  there  is  no  condemnation  of 
possession,  only  of  the  desire  therefor  without  working  to 
attain  it.  No  religion  or  code  of  ethics  can  deny  a  man  some 
share  of  the  wealth  he  creates  by  his  own  efforts  without  a 
sacrifice  on  the  part  of  other  men,  whereas  the  acquisition  of 
wealth  from  others  without  equitable  return  can  have  no  moral 
justification. 

From  its  failure  to  distinguish  between  the  producer  and 
the  handler  of  wealth,  and  its  acceptance  of  a  '  law  '  which 
countenances  robbery,  Economics  as  taught  to-day  is  not 
merely  a  non-moral  but  an  immoral  science,  and  its  teachers 
corrupters  of  civilization  ;  consequently,  until  the  leaders  of 
every  Church  denounce  it,  and  adopt  a  truly  ethical  system  of 
Economics,  the  power  of  religion  to  influence  man  for  his  well- 
being  cannot  be  effective. 


254 


PART  IV 

ECONOMIC    DELUSIONS 

CHAPTER   XXIII 

THE   ORIGIN  AND  EFFECT  OF   FREE  TRADE 

WE  have  endeavoured,  starting  from  simple  yet  natural 
conditions,  to  construct  a  science   of   Economics  on 
irrefutable  facts  and  principles,  and  to  apply  this  to 
our  apparently  complex  civilization,   but  before  we  sum  up 
and  arrive  at  our  new  system  of  government  we  must  devote 
some  space  to  an  analysis  of  the  consequences  of  the  economic 
order,  or  so-called  political  economy,  as  now  taught. 

If  Economics  be  a  science,  its  principles  cannot  be  a  matter 
of  opinion,  prejudice,  or  politics,  yet  it  appears  undeniable  that 
those  who  propound  its  philosophy  are  lacking  in  scientific 
knowledge,  or  indeed  in  any  logic  at  all.  In  its  early  years 
Economics  was  known  as  '  the  dismal  science,'  and  to-day  it 
were  better  described  as  a  fraudulent  one,  for  in  no  other 
science  have  sophistries  been  admitted  or  incontrovertible 
facts  denied  in  order  to  support  statements  which  are  irreconcil- 
able with  the  truths  of  existence.  Thus  the  statements  that 
value  depends  upon  demand  and  wealth  is  due  to  trade  entail 
a  denial  of  the  essential  distinction  between  the  value  of 
necessaries  and  of  luxuries,  or  of  that  which  supports  human 
life  as  against  that  which  merely  affords  gratification.  We 
would  draw  the  reader's  attention  to  a  little  book  entitled 
Economics  and  Syndicalism,  by  Professor  Kirkcaldy,  in  which  are 
exposed  the  illogical  conclusions  of  numerous  divergent  schools 
of  thought.  Surely  a  science  which  cannot  satisfactorily  account 
for  every  manifestation  related  to  it  is  unworthy  of  the  name. 
It  is  often  more  easy  to  obtain  credence  for  a  statement, 
especially  if  it  appeals  to  man's  passions,  than  to  refute  it, 


THE  REAL  WEALTH  OF  NATIONS 

and  it  is  manifestly  impossible  to  deal  within  the  scope  of  this 
book  with  the  mass  of  literature  on  the  subject.  We  will, 
however,  endeavour  to  expose  the  origin  of  certain  false  theories 
taught  in  practically  every  school  of  Economics.  It  is  evident 
that  the  subject  of  wealth  is  the  most  susceptible  of  any  to 
prejudice,  and  to  individual  rather  than  general  reasoning. 

We  have  met  the  scathing  criticism  that  we  could  not 
conceivably  be  right  and  all  the  experts  wrong.  The  latter  at 
least  is  surely  not  impossible,  since  many  of  these  pundits  con- 
tradict one  another.  Numerous  sciences,  particularly  those  that 
make  a  popular  appeal,  such  as  astronomy,  botany,  zoology, 
have  suffered  from  charlatans,  whereas  others,  such  as  those 
dealing  with  sound,  heat,  electricity,  have  been  preserved  from 
these  and  have  therefore  been  developed  not  by  seekers  after 
popularity,  but  by  seekers  after  truth. 

Every  science  that  deals  with  matter  has  its  accepted  units, 
which  are  defined  in  relation  to  a  known  quantity  or  result, 
and  the  failure  of  the  economists  arises  primarily  from  inability 
to  measure  wealth  or  to  discover  the  true  unit  of  value,  which, 
as  we  showed  in  Chapter  III,  is,  in  each  country,  simply  the 
daily  necessaries  of  life  of  the  average  man.  That  such  an 
obvious  truth  was  not  recognized  can  only  be  attributed  to 
absence  of  scientific  acumen,  for  any  thoughtful  man  can  grasp 
the  essential  distinction  between  necessaries  and  luxuries,  and 
appreciate  the  value  of  an  article  which  supports  human  life 
as  against  that  of  one  which  merely  gives  gratification. 

Every  economist  has  nevertheless  sought  after  this  unit  of 
value.  Thus  the  '  agricultural '  economist  found  it  in  '  food,' 
the  '  labour  '  economist  in  '  labour,1  the  '  business  '  economist 
in  '  trade,*  and  as  the  latter  school  grew,  coinciding  with  an 
increase  in  world  wealth,  it  ultimately  obtained  the  support 
of  the  modern  professional  economists,  who  invented  the  law 
of  supply  and  demand  to  account  for  the  increase  in  wealth 
which  they  assumed  arises  from  the  exchange  of  goods. 

Any  child  or  fool  can  see  an  effect  although  its  cause  may 
be  quite  beyond  his  comprehension.  Not  that  we  suggest  that 
failure  to  recognize  the  real  unit  of  value,  or  to  perceive  that 
all  the  man-wealth  in  the  world  is  due  to  production,  the  result 
256 


THE  ORIGIN  OF  FREE  TRADE 

of  the  application  of  brains  or  skill,  is  necessarily  a  sign  of 
insanity.  We  do,  however,  suggest  that  it  denotes  an  unfitness 
to  teach  Economics. 

The  schools  of  Economics  have  been  described  as  hotbeds 
of  political  propaganda,  and,  for  example,  the  doctrine  of  a 
natural  enmity  between  capital  and  labour,  between  employer 
and  employed,  where  it  is  not  inspired  by  ignorance,  has 
ulterior  motives.  As  we  have  seen,  neither  labour  nor  capital 
produce  wealth,  except  they  be  harnessed  to  skill  or  brains, 
which,  although  ignored  by  the  economists,  are  the  sole  source 
of  all  man-wealth  in  the  world.  The  policy  of  Free  Trade 
obtained  enormous  support  because  it  appealed  to  the  majority, 
the  wage-earners,  who  were  told  that  their  earnings  would  go 
farther  and  that  it  would  prevent  their  exploitation  by  the 
employer,  although  no  economist  has  so  far  established  that 
it  can  improve  the  relation  between  wages  and  prices,  which 
alone  would  really  benefit  the  whole  community.  The  work- 
man's undoing  arises  from  thinking  that  the  exchange  is  his 
money  for  goods,  whereas  it  is  his  labour-hours  which  he 
exchanges,  if  he  be  working  for  export  (or,  if  not,  those  of  a 
fellow-countryman),  in  return  for  those  of  a  foreigner,  and 
that  nation  gains  whose  people  expend  the  fewest  hours. 

The  working  classes  were  further  deceived  by  the  fallacious 
division  of  the  nation  into  employers  and  employed,  instead 
of  into  producers  and  non-producers,  because  they  were  led 
to  believe  that  individual  employers  were  the  producers,  and 
could  keep  to  themselves  the  results  of  increased  production, 
whereas  we  know  that  they  must  share  this  with  their  co- 
workers.  Otherwise  it  would  be  the  distribution  of  wealth 
that  required  alteration.  It  is  obvious  that  with  the  latter 
constant,  increased  production  must  benefit  both  masters 
and  men,  for  no  one  can  deny  that  the  amount  of  wages 
payable  depends  upon  output  and  not  upon  a  whim  of  the 
employer,  as  becomes  clear  when  we  consider  production 
without  an  employer. 

In  Chapter  XIX  we  exposed  the  illusion  that  buying  in  the 
cheapest  market  necessarily  profits  even  an  individual,  yet  the 
influence  of  Free  Traders,  due  to  the  apparent  success  of  their 

257 


THE  REAL  WEALTH  OF  NATIONS 

policy,  and  the  failure  of  the  Tariff  Reformers,  owing  to  their 
inability  to  measure  the  national  value  of  industries,  show  how 
widespread  is  the  fallacy  that  a  nation's  wealth  is  due  to  trade. 

To  many  people  the  words  '  Free  Trade  '  imply  a  natural 
condition  of  things,  yet  personal  liberty  is  incompatible  with 
civilization,  and  as  no  one  has  suggested  that  Free  Drinks  or 
Free  Love  would  promote  the  well-being  of  a  nation  or 
humanity,  it  would  appear  that  the  attraction  of  this  policy 
must  arise  from  the  virtues  of  *  trade.' 

Free  Trade,  or  buying  in  the  cheapest  market,  is  in  evidence 
at  home,  where,  however,  it  is  realized  that  an  employer  may 
not  starve  or  ill-treat  his  workpeople,  that  the  man  who 
pays  the  lowest  wages  is  not  a  benefactor,  that  the  buyer 
of  sweated  goods  is  not  a  hero.  But  as  regards  foreign  trade 
these  crimes  are  virtues  and  everything  is  different.  Hence, 
the  same  people  who  maintain  that  a  nation  cannot  become 
rich  by  exchanging  goods  at  home — which  process  they  term 
'  taking  in  one  another's  washing  '  (washing  being  considered, 
of  course,  an  unproductive  occupation) — imagine  that  when  a 
nation  exchanges  goods  with  another  it  necessarily  benefits. 
In  fact,  they  often  go  so  far  as  to  believe  that  this  is  the  only 
way  for  a  nation  to  get  rich,  whereas  the  truth  is,  as  demon- 
strated in  Chapter  XIII,  that  the  wealth-production  of  a 
self-contained  nation  depends  solely  upon  the  quality  of  its 
industries,  and  in  Chapter  XV,  that  only  through  an  improve- 
ment in  its  industries  does  a  nation  gain  by  foreign  trade. 
Consequently,  although  certain  individuals  may  benefit  through 
an  increase  in  the  export  of  the  products  of  unskilled  labour 
or  irreplaceable  raw  material,  their  country  is  actually  poorer 
thereby. 

The  hold  that  Free  Trade  has  on  the  minds  of  Englishmen 
is  not  due  to  any  appreciation  of  economic  principles,  but  to 
the  abolition  of  the  Corn  Laws,  which  undoubtedly  gave  the 
country  cheap  bread.  England  was  at  that  time  the  greatest 
industrial  nation,  due  to  her  numerous  inventors  and  their 
opportunity  for  development  consequent  on  the  country's 
freedom  from  devastating  wars,  so  if  she  did  ruin  her  farmers 
she  had  other  more  lucrative  industries  available  from  which 
258 


THE  ORIGIN  OF  FREE  TRADE 

to  pay  for  foreign  wheat.  Her  advantage  was  due  not  to 
Free  Trade,  but  once  more  to  the  quality  of  her  industries,  and 
the  statues  erected  to  Sir  Robert  Peel,  Richard  Cobden,  and 
J.  S.  Mill  should  be  replaced  by  memorials  to  those  who  gave 
the  country  cheap  goods,  as  James  Watt,  George  Stephenson, 
Richard  Arkwright,  the  real  wealthTproducers. 

Ignoring  for  a  moment  the  danger  of  dependence  on  other 
nations  for  necessaries  of  life,  a  graded  system  of  Protection 
based  upon  the  national  value  of  her  industries  would  have 
given  England  identical  advantages  with  those  claimed  for 
Free  Trade,  and  at  the  same  time  would  have  secured  her 
industries  against  future  competition. 

If  agriculture  was  an  industry  of  very  little  value,  it  was 
right,  again  ignoring  the  risk,  to  surrender  it,  but  this  was  not 
desired.  The  free  import  of  foreign  wheat  was  designed  to 
compel  the  farmers  to  sell  more  cheaply  to  the  town-dwellers — 
regardless  of  the  fact  that  if  their  profits  were  excessive  these 
could  have  been  controlled  or  properly  taxed — or,  alternatively, 
to  sweat  the  agricultural  workers  for  the  benefit  of  the  rest. 
Not  merely  was  the  immorality  of  this  overlooked,  but  also 
the  truth,  which  no  socialist  could  deny,  that  for  the  same 
labour-quality  there  should  be  no  difference  in  favour  of  the 
town-dweller.  Recognizing  the  need  for  a  healthy  population, 
a  nation  should  rather  over-pay  than  under-pay  its  food- 
producers. 

Forty  years  later  conditions  had  altered  entirely.  England 
had  no  longer  a  monopoly  of  the  skilled  industries,  and  with 
the  exchange  value  produced  per  worker  falling  continuously, 
she  would  have  been  far  better  off  producing  her  own  food 
under  healthy  conditions  than  in  exporting  cheap  cotton  and 
woollen  goods  and  the  nation's  irreplaceable  coal,  all  the  fruits 
of  unhealthy  toil,  or  in  acting  as  the  transport-workers  of  the 
world.  Indeed,  in  the  middle  of  the  nineteenth  century 
England  had  no  industries  which  needed  *  Protection,'  except 
agriculture,  and  the  term  fell  into  contempt,  whence  '  Tariff 
Reform,'  the  adherents  of  which,  however,  seem  equally  barren 
of  ideas  as  to  which  industries  should  or  should  not  be 
protected. 

259 


THE  REAL  WEALTH  OF  NATIONS 

Although  we  proved  in  Chapter  XIX  that  Free  Trade,  or 
buying  in  the  cheapest  market,  was  incompatible  with  civili- 
zation, almost  every  social  reformer  believes  the  contrary. 
This  is,  however,  not  surprising  when  one  considers  the  condi- 
tions that  existed  in  past  centuries,  when  all  power  resided  in 
a  few  who,  compelling  labour  to  work  for  little  if  any  more 
than  its  keep,  or  necessaries  of  life,  took  the  lion's  share  of  pro- 
duction. At  a  later  period,  as  transport  facilities  increased, 
the  merchants  or  middlemen  also  waxed  in  wealth  and  import- 
ance, yet  they  too,  as  indeed  to  this  very  day,  were  no  more 
fair  to  their  workers — whether  of  pen  or  spade. 

Now,  as  trade  between  nations  increased,  the  sympathizers 
with  the  working  classes,  and  the  most  intelligent  workers  also, 
foresaw  that  if  other  nations  were  allowed  to  compete  with 
home  producers  their  monopoly  would  be  broken  down,  and 
the  necessaries  of  life  would  become  cheaper  in  terms  of  money. 
It  was  not  realized,  however,  that  if  the  employer's  profit 
were  reduced  he  would  endeavour  to  reduce  the  workers' 
wages,  so  that  in  the  end  the  latter  would  be  no  better  off, 
and  the  employers  would  be  worse  off.  Further,  it  was  entirely 
overlooked  that  anything  which  lessened  the  national  produc- 
tion must  reduce  its  divisible  wealth,  and  that  the  interests 
of  the  workers  lay  in  compelling  their  employers  to  give  them 
a  fair  and  just  share  of  the  wealth  produced. 

It  cannot  be  pretended  that  this  was  impossible  of  attain- 
ment, for  the  power  of  the  workers  was  constantly  increasing, 
but  as  there  was  no  real  demand  for  it,  it  is  evident  that  their 
representatives  were  either  ignorant  or  deliberately  misled 
them.  But  are  we  wiser  to-day  ?  For  while  all  are  agreed 
that  the  workers  should  share  in  their  employers'  prosperity, 
providing  they  give  of  their  best — when  a  proper  wealth- 
distribution  would  mean  a  contented  and  prosperous  people — 
most  British  political  leaders  advocate  economic  panaceas 
which  would  impoverish  the  nation. 

Those  who  argue  that  there  are  more  consumers  than 
producers  have  apparently  not  stopped  to  consider  that  all 
are  consumers,  the  producers  being  the  most  important  con- 
sumers, and  that  as  the  latter  produce  everything  consumed, 
260 


THE  ORIGIN  OF  FREE  TRADE 

the  non-producing  consumers  derive  everything  from  them, 
wherefore  increase  of  wealth-production  will,  with  the  same 
wealth-distribution,  benefit  the  consumer  pari  passu. 

If  this  be  true,  and  it  cannot  be  denied,  refusal  to  adopt 
that  Protection  which  we  proved  conclusively  in  Chapter  XXI 
is  essential  for  the  development  of  a  nation's  wealth-producing 
industries  is  a  confession  of  impotence  of  government,  equiva- 
lent to  forbidding  the  production  of  wealth  because  of  inability 
to  devise  an  equitable  distribution  of  it.  Further,  if  employers 
were  abolished,  the  difficulties  would  remain,  for  all  workers 
are  not  equally  deserving  and  would  not  be  content  with  a 
flat-rate  reward  ;  indeed,  by  considering  the  employer  abolished 
the  workers  will  more  clearly  see  the  essential  necessity  of 
Protection  for  the  best  industries,  i.e.,  those  which  yield  the 
highest  value  per  worker,  and  therefore  the  highest  wages. 

It  is  obvious  that  freedom  to  buy  the  products  of  lower-paid 
foreign  labour  means  depressing  labour  conditions  at  home. 
Given  an  equal  efficiency  of  labour,  the  value  of  the  goods  pro- 
duced by  the  cheap  foreign  labour  will,  because  of  the  lower 
wages  paid,  be  higher  than  that  of  goods  produced  at  home 
for  the  same  total  wages.  Having  therefore  to  produce  goods  of 
equal  value  to  pay  for  those  imported,  some  home  workers  must 
work  longer  hours  for  the  same  money,  or  accept  less  wages. 

If  individuals  had  complete  liberty  to  purchase  goods 
abroad,  they  might  possibly  benefit  the  foreign  workers  and 
themselves,  but  it  would  be  at  the  expense  of  the  home  workers. 
Even  the  argument  so  constantly  used  by  Free  Traders,  that 
goods  are  paid  for  by  goods,  makes  it  evident  that  in  return 
for  every  import  something  must  be  produced  to  export,  and 
the  question  is,  would  the  nation  have  been  better  or  worse 
off  had  it  produced  the  imported  article  itself  ? 

We  have  exposed  the  delusion  that  in  an  exchange  of  goods, 
or  trading,  both  parties  can  benefit  simultaneously,  as  com- 
pared with  their  position  the  moment  before  the  exchange 
was  effected,  for  the  value  lies  in  the  article  itself.  Otherwise, 
at  what  moment  subsequent  to  manufacture  does  the  value 


appear  ? 


It  is  true  that  both  parties  may  be  better  off  by  exchanging 

261 


THE  REAL  WEALTH  OF  NATIONS 

than  if  each  produced  the  article  he  wanted,  but  this  advantage 
is  derived  from  more  efficient  production,  of  which  the  exchange 
is  not  the  cause,  for  the  production  is  complete  before  the 
exchange  takes  place.  (See  Chapter  V.) 

The  argument  of  the  economists  that  both  parties  are 
better  off  because  each  gets  what  he  wants,  that  value  depends 
upon  demand  because  an  article  which  a  person  does  not  want 
has  no  value  to  him,  is  based  on  a  denial  of  intrinsic  value — 
i.e.,  denial  that  there  is  distinction  between  necessaries  and 
luxuries,  or  that  any  unit  of  value  exists — and  the  assumption 
that  there  is  no  other  market  for  the  article.  But  if  this 
assumption  were  reasonable,  no  one  would  be  so  foolish  as 
to  produce  the  article.  When  goods  are  once  produced,  no 
handling  can  increase  their  intrinsic  value  nor  reduce  their 
cost,  although  it  will  undoubtedly  increase  their  price. 

All  theories  which  assume  that  value  is  dependent  either 
upon  demand  or  cost  of  production  are  fundamentally  false, 
although  many  books  have  been  written  to  demonstrate  the 
contrary,  for  the  most  important  value  in  the  world,  viz.,  that 
of  the  necessaries  of  life  of  all  mankind,  is  independent  of 
man's  opinion,  or  his  costs  of  production,  and  resides  in  the 
fact  that  these  necessaries  keep  him  alive  and  able  to  produce 
luxuries  or  to  enjoy  leisure. 

The  unit  of  value  in  any  climate  is  thus  the  necessaries 
of  life  of  the  average  man  for  one  day.  He  who  produces  in 
a  day  twice  his  necessaries  creates  one  unit  of  wealth, 
y  It  is  true  that  the  value  of  luxuries  depends  upon  demand, 
as  no  one  can  measure  pleasure,  yet  the  price  of  a  luxury  is 
decided  by  the  amount  of  surplus  necessaries  a  man  will 
sacrifice  to  obtain  it,  for  although  in  an  exchange  of  luxuries 
both  parties  may  be  satisfied,  they  cannot  both  be  richer,  and 
in  an  exchange  of  necessaries  any  departure  from  the  basis 
of  intrinsic  value  results  in  one  party  benefiting  at  the  expense 
of  the  other.  (See  Chapter  V.) 

To  admit  that  wealth  is  due  to  the  exchange  of  goods,  and 
not  solely  to  their  production,  demands  acceptance  of  the 
above  quoted  axiom  that  goods  have  no  value  unless  some- 
one wants  them,  that  value  depends  upon  demand.  If  this  be 
262 


THE  ORIGIN  OF  FREE  TRADE 

true,  the  same  article  in  the  same  place  can  have  a  variable 
value,  and  the  total  value  of  the  wealth  in  the  world  is  a  matter 
of  opinion,  not  of  fact,  wherefore  wealth  itself  must  indeed  be 
a  will-o'-the-wisp  ! 

Lest  the  reader  imagine  we  are  exaggerating  the  conse- 
quences of  an  acceptance  of  this  absurd  axiom,  we  will  cite 
'  the  order  of  appetite,1  according  to  which  the  value  of  each 
particle  of  food  on  his  plate  at  the  beginning  of  a  meal  falls 
continuously  as  his  appetite  is  satisfied,  whereas  in  fact  its 
real  value,  i.e.,  nutriment,  must  be  constant. 

The  prophets  of  this  cult  overlook  that  man  must  eat  in 
order  to  live,  and  the  fundamental  distinction  between  neces- 
saries and  luxuries,  between  the  value  of  that  which  supports 
human  life  or  economizes  the  consumption  of  necessaries,  as 
compared  with  that  which  merely  affords  pleasure.  Thus,  in 
an  attempt  to  refute  this  distinction,  a  prominent  Fabian 
wrote  to  the  author :  "  There  are  not  two  sorts  of  value,  but 
an  order  of  appetite,  and  if  a  loaf  has  one  sort  of  value  and  a 
diamond  another,  you  are  committed  to  every  article  having 
a  different  sort  of  value.'*  The  answer  is,  that  there  are  just 
two  sorts  of  value,  and  that  almost  every  article  has  them  : 
(a)  an  intrinsic  value,  (b)  a  demand  value — the  former  being 
derived  from  the  fact  that  it  supports  human  life,  or  saves  its 
labour,  whence  it  is  measurable;  the  latter  to  shortage, 
fashion,  or  demand — and  the  sum  of  these  two  values  is  the 
exchange  value  or  price.  Thus,  a  diamond  has  a  small 
intrinsic  value,  from  its  utility  for  cutting  glass,  etc.,  and  a 
huge  demand  value  due  to  fashion.  A  loaf  has  relatively  a 
high  intrinsic  value  from  its  nutriment,  and  a  shortage  will  add 
a  demand  value  to  this.  Only  jewels  of  no  practical  utility, 
like  pearls  or  artificial  jewellery,  have  one  sort  of  value  only, 
viz.,  demand  value. 

The  same  correspondent  stated  that  "  A  man  cannot 
sacrifice  necessaries  in  order  to  obtain  luxuries  without  dying, 
but  only  superfluities."  Hence,  a  surplus  of  necessaries  has 
no  value  for  the  next  day,  in  spite  of  the  fact  that  it  will 
support  human  life  for  a  time  and  thus  permit  of  the  enjoy- 
ment of  leisure,  or  the  production  of  luxuries.  Evidently,  to 

263 


THE  REAL  WEALTH  OF  NATIONS 

this  economist  an  article  not  required  for  immediate  consump- 
tion is  a  superfluity  and  has  no  value,  or  the  remainder  of 
our  Sunday's  joint  has  no  value  on  Sunday,  but  acquires  it 
again  on  Monday  ! 

As  a  further  example  of  the  absurdities  upon  which  the 
whole  structure  of  Free  Trade  depends,  we  would  also  cite  this 
gem  from  the  same  source.  "  Although  to  a  starving  man 
one  potato  may  be  worth  £1000,  the  fiftieth  one  would  not  be 
worth  2d.,  the  value  falling  with  every  potato  until  it  becomes 
disutility  or  loathing  "  !  As  a  result  we  see  the  same  potato 
having  different  values,  although  the  fiftieth  potato  is  equally 
as  capable  of  saving  a  man  from  starvation  as  the  first.  Value 
is  confused  with  price.  Further,  although  the  first  potato  may 
save  the  man  from  starvation,  it  does  so  only  for  such  length 
of  time  as  corresponds  to  its  nutriment,  or,  again,  its  intrinsic 
value,  at  the  end  of  which  period  he  would  be  starving  once 
more,  when  the  second  potato  would  also  be  worth  £1000. 

The  potato  is  never  really  worth  £1000,  and  its  high  price 
merely  represents  a  transfer  of  wealth,  in  the  shape  of  money, 
from  the  buyer  to  the  seller  and  no  increase  in  wealth  whatever. 
Yet  such  preposterous  theories,  which  would  have  delighted 
the  heart  of  Lewis  Carroll,  have  been  evolved  by  the  brains 
of  grown-up  men  in  their  endeavour  to  square  the  circle,  or 
prove  that  the  value  of  wealth  depends  upon  demand,  appetite, 
or  opinion.  A  child  could  see  that  this  only  applies  to  a  pure 
luxury  value,  and  could  realize  that  the  value  of  all  articles 
which  support  human  life  or  save  labour  is  independent  of 
opinion  and  measurable  only  by  the  length  of  time  they  will 
support  it  or  the  number  of  hours  they  will  save.  If  a  loaf 
of  bread  will  keep  one  man  alive  for  one  day,  its  value  inheres, 
whether  the  man  eat  it,  leave  it,  or  die,  for  it  will  support 
human  life.  On  the  other  hand,  the  value  of  a  pure  luxury 
does  disappear  if  no  one  wants  it,  but  then  it  never  had  of  itself 
any  real  value,  only  one  relative  to  that  of  necessaries. 

In  spite  of  the  absurdity  of  the  contention  that  wealth  is 
due  to  the  exchange  of  goods,  it  is  obvious  that  in  every  export 
and  import  some  individuals  actually  do  make  a  profit,  and 
consequently  such  men  naturally  consider  all  export  and  import 

264  ' 


THE  ORIGIN  OF  FREE  TRADE 

advantageous,  and  clamour  for  Free  Trade.  Nevertheless  it 
is  undeniable,  although  apparently  overlooked,  that  if  an 
exporter  stole  his  material,  or  starved  his  workers,  his  profit 
must  be  made  at  the  expense  of  the  nation,  and  therefore  it  is 
clear  that  all  exports  cannot  benefit  a  nation,  and  that  the 
individual's  cost  of  production  is  quite  a  different  consideration 
from  the  national  cost.  That  of  an  individual  is  the  sum  of 
the  price  he  pays  for  his  raw  material  and  his  wages  bill,  but 
the  whole  may  remain  in  the  country,  and  thus  there  is  merely 
a  transfer  of  wealth,  whereas  quite  an  elementary  consideration 
of  this  matter,  to  which  we  referred  fully  in  Chapter  X,  shows 
that  the  national  cost  is  the  destruction  of  irreplaceable  raw 
material,  plus  the  consumption  of  necessaries  of  life  by  all  the 
workers,  the  latter,  expressed  in  wages,  being  the  living  wage. 

Thus,  through  an  exchange  of  goods  between  two  nations 
one,  or  even  both,  may  be  worse  off  than  if  it  had  itself  produced 
the  imported  article  and,  if  we  ignore  the  irreplaceable  raw 
material,  that  one  benefits  whose  national  cost  of  production 
is  lowest,  i.e.,  which  employs  the  least  number  of  workpeople 
to  create  a  given  exchange  value  or  selling  price,  which  con- 
dition is  generally  found  in  skilled  industries. 

Further,  as  shown  in  Chapter  XVIII,  under  a  condition 
of  Free  Trade  the  more  skilled  and  profitable  an  industry,  the 
greater  the  international  competition  in  the  home  market, 
so  that  the  free  import  of  the  products  of  skilled  foreign  labour 
tends  to  drive  home  labour  into  less-skilled  industries,  increase 
the  national  cost  of  production  of  the  exports,  reduce  wages, 
and  make  their  relation  to  prices  less  favourable. 

On  the  other  hand,  the  free  import  of  the  products  of 
foreign  unskilled  labour,  corresponding  to  a  low  value  per 
worker,  will  drive  home  labour  into  better  industries,  where- 
from  to  pay  for  the  imports,  provided  that  the  nation  reserves 
to  itself  the  market  in  these  industries  and  educates  its  workers 
for  them. 

It  is  undeniable  that  every  nation  has  a  right  to  its  own 
industries,  and  as  markets  for  them  are  essential  to  their  exist- 
ence, every  nation  must  also  have  a  right  to  its  own  market. 
The  lack  of  a  market  will  prevent  the  establishment  or  proper 

265 


THE  REAL  WEALTH  OF  NATIONS 

development  of  the  best  industries,  which  are  the  most  subject 
to  competition,  keep  them  small  and  inefficient,  and  force 
labour  into  ever  less-skilled  and  worse-paid  occupations. 
Indeed,  it  has  always  been  claimed  by  Free  Traders  that  their 
policy  provides  cheap  labour,  and  that  this  stimulates  exports. 
These  very  exports,  however,  are  the  products  of  sweated 
labour,  which,  as  we  have  seen,  do  not  benefit  the  nation  or 
workers,  but  only  certain  individuals. 

It  is  evident,  therefore,  that  although  goods  are  paid  for 
by  goods,  despite  the  belief  of  some  Tariff  Reformers  to  the 
contrary,  all  goods  are  not  of  equal  value  to  the  nation,  which, 
if  civilized,  must  endeavour  to  exchange  the  products  of  its 
own  skilled  for  those  of  less-skilled  foreign  labour. 

Industries  which  yield  a  high  value  per  worker  (regardless 
of  the  employers'  profit)  have  a  right  to  Free  Production, 
whereas  such  as  employ  masses  of  unskilled  labour  should 
enjoy  those  '  blessings  '  of  Free  Trade  which,  for  their  own 
personal  advantage,  some  men  desire  to  rivet  on  the  community. 

A  nation  can  no  more  be  dissociated  from  its  country  than 
a  family  from  its  home.  The  entity  of  a  nation  comprises  a 
country  and  its  people,  the  wealth  of  a  nation  resides  in  the 
land  and  people.  A  nation  which  exported  all  its  people  would 
cease  to  exist.  A  nation  which  exported  all  its  natural  resources 
would  starve  ;  nevertheless  that  is  the  logical  conclusion  to  a 
policy  of  unrestricted  free  exports  and  Free  Trade. 

The  term  '  Free  Trade  '  suggests  '  liberty  '  ;  in  reality  it 
means  '  licence.'  While  every  man  (and  every  nation)  should 
be  free  to  develop  and  use  the  gifts  of  Nature  to  their  fullest 
extent,  i.e.,  to  produce  both  for  the  benefit  of  himself  and  his 
fellow-men,  liberty  to  steal  what  he  cannot  replace  of  a  nation's 
resources,  to  exchange  the  labour  of  his  fellows  for  that  of 
a  lesser  number  of  workers  of  another  nation,  to  take  advantage 
of  a  man's  necessitous  condition  and  compel  him  to  hand  over 
in  an  exchange  more  than  an  equivalent  value,  is  incompatible 
with  the  elementary  principles  of  civilization  and  good  govern- 
ment, and  the  concession  of  the  right  to  do  these  things  is  the 
fruit  of  false  economic  postulates. 

Nevertheless,  although  Free  Trade  can  never  be  beneficial 

266 


THE  ORIGIN  OF  FREE  TRADE 

to  a  country,  because  it  in  no  way  helps  those  industries 
which  result  in  the  greatest  wealth-production  per  worker,  it  is 
possible  for  it  to  be  innocuous,  viz.,  when  the  nation  enjoys  a 
monopoly  of  skilled  industries,  or  when  all  its  workers  are  fully 
occupied  in  such.  The  former  condition  obtained  in  the  middle 
of  the  nineteenth  century,  and  the  leaders  of  the  British  Free 
Trade  movement  of  that  period  were  not  so  foolish  as  those  of 
to-day  ;  they  were  only  wrong  in  assuming  that  other  nations 
would  be  content  to  remain  permanently  in  an  inferior  economic 
position  to  their  own. 

Their  insular  conceit  was  indeed  astounding,  unless  they 
really  anticipated  that  the  Continent  and  America  would 
always  be  devastated  by  war,  and  therefore  be  unable  to 
educate  themselves  to  become  rivals  of  the  British  in  industrial 
development.  The  preposterous  theories  evolved  to  prove 
that  wealth  was  due  to  trade,  and  therefore  to  justify  perpetual 
Free  Trade,  such  as  those  of  Jevons  on  "  Value,"  were  of 
subsequent  date,  and  indicate  their  authors'  lack  of  appre- 
ciation that  the  true  cause  of  Britain's  wealth-increase  in 
their  time  was  the  quality  of  her  industries. 

We  saw  in  preceding  chapters  that  the  effect  of  Protection 
upon  the  national  cost  of  production  is  nil,  yet  the  argument 
is  sometimes  advanced  that  if  a  nation  protects  an  industry 
for  which  its  conditions  are  naturally  and  artificially  unsuitable 
its  cost  of  production  will  be  high.  Of  course  this  is  so,  but 
it  is  due  to  that  same  unsuitability,  and  not  to  Protection. 
For  instance,  if  Britain  tried  to  grow  cotton  and  protected 
the  workers,  the  latter  would  certainly  benefit  at  the  expense 
of  their  fellows,  because  their  labour  would  be  in  vain.  They 
would  produce  nothing,  and  live  on  the  rest  of  the  community. 
On  the  other  hand,  if  they  ultimately  succeeded  in  producing 
a  large  amount  of  cotton  per  worker,  the  protection  given 
them  would  be  justified.  The  nation  must  decide  what  it  can 
produce  efficiently,  and  this  is  not  a  matter  of  opinion,  but  of 
fact,  depending  solely  upon  the  actual  value  produced  per 
worker,  as  fully  explained  in  Chapter  X. 

We  have  shown  the  detrimental  effect  of  a  one-sided  Free 
Trade,  yet  many  of  its  fiercest  antagonists  would  withdraw 

267 


THE  REAL  WEALTH  OF  NATIONS 

their  opposition  if  Free  Trade  could  be  universal,  thus  proving 
conclusively  that  they  too  have  no  conception  of  the  real 
object  of  Protection — namely,  the  stimulation  of  high  value- 
producing  industries — nor  of  the  cardinal  evil  of  Free  Trade 
— namely,  the  prevention  of  their  establishment.  As  a  natural 
corollary  they  have  failed  to  discern  that  universal  Free  Trade, 
if  indeed  they  ever  visualized  such  a  condition,  would  mean 
the  most  intense  economic  war  among  the  workers  of  all 
nations,  with  victory  to  those  with  the  lowest  standard  of 
living. 

The  prevalence  of  a  contrary  opinion,  which  sees  in  the 
widest  competition  the  salvation  of  humanity,  arises  from 
acceptance  of  three  cardinal  fallacies.  It  is  assumed  that  if 
one  nation  cannot  compete  with  another  in  price  it  is  (i)  its 
own  fault,  (2)  due  to  a  lower  efficiency,  and  (3)  beneficial  to 
surrender  that  industry  and  take  up  another. 

Considering  the  first,  if  we  assume  equal  efficiency,  there 
are  still  two  factors  independent  of  man,  viz.,  the  assistance 
given  by  Nature  and  the  size  of  the  nation's  market,  this  being 
dependent  upon  its  population,  or  its  total  production.  Thus, 
a  nation  might  not  be  able  to  compete  owing  to  a  handicap  by 
Nature,  and  a  small  country  will  always  be  at  a  disadvantage 
with  a  larger  one.  The  second  fallacy  is  now  also  exposed, 
for  a  nation  with  a  lower  efficiency  but  greater  natural  advan- 
tages might  be  able  to  compete  successfully  with  one  with  a 
higher  efficiency  but  lesser  natural  advantages. 

The  third  illusion,  that  an  industry  should  be  given  up  if 
cost  of  production  be  higher  than  abroad,  is  the  most  dangerous 
of  all,  and  shows  how  the  national  value  attaching  to  industries 
has  been  completely  lost  sight  of,  for  the  nation's  very  best 
industry  might  be  one  that  other  countries  could  more  success- 
fully develop  because  of  superior  natural  advantages.  If  such 
an  industry  be  surrendered,  the  nation  must  needs  descend 
to  a  worse  one,  not  merely  because  the  first  was  the  best,  but 
because,  had  there  been  a  better  one  available,  labour  would 
or  should  already  have  been  attracted  thereto,  the  total  wages 
payable  in  an  industry  depending  upon  the  total  value  realized 
by  that  industry. 
268 


THE  ORIGIN  OF  FREE  TRADE 

Thus  a  nation  only  benefits  through  surrendering  an 
industry  when  there  is  a  better  one  available  for  its  workers, 
and  as  competition  will  always  be  the  more  severe  the  better 
the  industry,  the  result  of  unrestricted  competition  is  to  drive 
labour  into  ever  less  favourable  ones.  Further,  the  nation 
with  the  longest  working  day,  or  lowest  standard  of  living,  will 
always  be  able  to  undersell  the  rest,  so  that  universal  Free 
Trade  must  lead  to  the  degradation  of  humanity,  the  only 
remedy,  as  we  have  already  seen,  being  that  every  nation 
should  reserve  to  itself  the  market  for  those  industries  which 
most  benefit  its  workers. 

It  is  also  evident  that  if  all  the  markets  of  the  world  were 
open,  every  large  nation  would  have  an  advantage  over  every 
small  one,  assuming  equal  efficiency  (to  avoid  the  error  of 
considering  two  variables  at  the  same  time),  with  the  result 
that  the  former  with  its  larger  home  market  could  afford  to 
undersell  the  latter,  and  would  naturally  do  so  in  the  most 
profitable  industries.  Consequently  a  country  with  a  small 
population  would  have  its  best  industries  stolen  by  the  power 
of  numbers,  or  of  might  over  right,  and  be  compelled  to  descend 
to  a  lower  industrial  level  or  well-being.  Universal  Free  Trade 
would  lead  to  the  economic  subjection  of  small  nationalities 
and  to  denial  of  their  right  to  an  independent  existence. 
Although  advocated  by  many  supporters  of  the  League  of 
Nations,  it  is  totally  at  variance  with  the  basic  principles  of 
that  great  conception. 

We  do  not  denounce  the  tenets  of  Free  Trade  for  any  other 
reason  than  their  utter  fallacy,  and  we  express  no  opinion  as  to 
whether  its  votaries,  who  mostly  benefit  from  the  system,  are 
ignorant  of  the  elementary  principles  of  Economics  or  are 
merely  hypocrites.  We  incline,  however,  to  believe  the  former, 
because  most  of  them  are  so-called  business  men  who  lack  any 
scientific  education,  and  are  therefore  unable  to  subject  to  the 
tests  of  logic  those  fallacies,  the  law  of  supply  and  demand 
and  the  indistinguishability  of  necessaries  and  luxuries,  upon 
which  the  teachings  of  their  mentors  are  based.  As  for 
the  latter,  history  will  rank  them  with  the  long  series  of 
impostors  and  charlatans  who  in  all  ages  have  succeeded 

269 


THE  REAL  WEALTH  OF  NATIONS 

by  appealing  to  the  ignorance,  greed,  passions,  or  prejudices  of 
the  multitude. 

On  the  other  hand,  if  we  accept  the  aforesaid  fallacies, 
Free  Traders  are  right  and  consequently  Tariff  Reformers, 
having  failed  to  detect  the  flaw  in  their  arguments,  yet  deny- 
ing the  consequences,  are  guilty  of  even  greater  foolishness. 
Nevertheless,  numerous  ardent  Tariff  Reformers,  such  as 
professional  men,  must  be  honestly  mistaken,  for  as  their 
pockets  are  not  directly  affected  they  can  only  anticipate  a 
personal  benefit  from  the  policy  they  advocate  if  it  leads  to  an 
increase  in  national  wealth. 


270 


CHAPTER   XXIV 

THE  REAL  BENEFICIARIES  OF  FREE  TRADE  AND 
THE  FALLACIES  OF  THEIR  CONTENTIONS 

THE  popularity  of  Free  Trade  indicates  that  some  must 
actually  benefit  thereby,  or  many  must  imagine  that 
they  do  so. 

Considering  first  the  former,  it  is  evident  that  all  engaged 
in  handling  goods,  both  inward  and  outward — that  is,  importers, 
exporters,  shippers,  carriers,  bankers,  merchants,  shopkeepers, 
insurance  brokers,  in  fact,  a  mass  of  middlemen,  many  of 
whom  are  essential — make  money  or  their  living  by  Free  Trade. 
The  greater  the  volume  of  trade,  the  larger  the  number  of 
transactions  ;  the  more  often  the  goods  change  hands,  the 
greater  the  total  commissions. 

The  next  class  which  actually  benefits  by  Free  Trade 
comprises  those  who  manufacture  principally  for  export. 
They  obtain  a  larger  market  for  their  manufactures,  but, 
as  we  know,  that  in  no  respect  increases  the  size  of  the  nation's 
market,  for  as  goods  are  paid  for  by  goods  the  community 
must  eventually  import  other  goods,  some  of  which  it  might 
have  made  itself  in  place  of  those  which  it  exported.  Con- 
sequently the  manufacturers  in  question  merely  gain  a  larger 
foreign  market  at  the  expense  of  the  home  market  of  other 
producers. 

Now  all  manufacturers  naturally  desire  a  larger  market, 
and  freedom  to  export  (and  restrictions  on  exports  at  normal 
times  are  economically  unknown)  implies  that  no  questions 
will  be  asked  as  to  how  the  goods  to  be  exported  are  produced. 
That  this  is  so  is  exemplified  in  the  practice  of  quoting  lower 
prices  for  export  than  for  the  home  market,  which  necessitates, 
of  course,  a  lower  rate  of  wages  in  the  production  of  these 

271 


THE  REAL  WEALTH  OF  NATIONS 

goods.  The  lower  the  wage  paid,  the  easier  it  is  to  compete 
in  world  markets,  whence  an  employer  of  sweated  labour  is 
at  an  advantage  and  may  make  a  very  large  personal  profit 
by  exporting  the  products  thereof,  if  he  is  not  called  upon  to 
answer  questions  as  to  whether  his  workers  would  have  been 
better  off  had  they  been  producing  instead  the  goods  to  be 
imported  to  pay  for  those  exported.  As  we  have  stated 
previously,  it  is  often  urged  that  cheap  labour  is  essential 
for  the  export  trade,  and  claimed  for  Free  Trade  that  it  makes 
labour  cheap.  A  consequence  of  the  latter  is  that  Free  Trade 
benefits  the  employer  of  cheap  labour,  whereas  no  one  has 
suggested  that  it  helps  the  employer  of  highly-paid  labour. 
On  the  contrary,  it  is  obvious  that  if  an  employer  desired 
to  pay  higher  wages,  he  could  only  do  so,  unless  he  were 
making  an  exorbitant  profit,  if  he  could  feel  that  his  market 
was  certain. 

We  now  come  to  another  important  class  which  benefits 
by  liberty  to  trade,  and  no  questions  asked,  viz.,  those  men 
who  export  the  nation's  irreplaceable  raw  material,  such  as 
coal,  or  slightly  manufactured,  such  as  pig-iron,  iron  bars,  etc., 
which  could  obviously  be  utilized  at  home  to  produce  a  higher 
value  per  ton  consumed,  e.g.,  in  making  locomotives,  sewing- 
machines,  needles,  etc.,  or,  alternatively,  conserved  for  future 
generations.  These  individuals  benefit  at  the  expense  of  the 
nation  by  using  up  material  provided  by  Nature,  thus  im- 
poverishing the  soil,  but  their  disservice  does  not  end  here ; 
they  may  actually  help  other  nations  to  compete  with  the 
home  manufacturers  and  workers  in  the  home  and  foreign 
markets,  by  giving  them  raw  material,  often  at  an  especially 
cheap  price,  which  otherwise  they  might  have  lacked. 

So  much  for  those  who  actually  gain  through  Free  Trade, 
and  investigation  would  show  that  they  are  mostly  employers 
of  cheap  and  relatively  unskilled  productive  labour,  unpro- 
ductive labour,  such  as  sailors,  dock  labourers,  clerks,  shop 
assistants,  women,  and  even  children,  or  of  labour  working 
under  unpleasant  conditions,  as  miners.  True,  some  of  the 
first  named  make  such  enormous  profits,  e.g.,  manufacturers 
of  soap  and  chocolates,  that  they  can  afford  to  build  garden 
272 


BENEFICIARIES  OF  FREE  TRADE 

cities,  but  it  is  the  public  that  provides  these,  by  paying 
high  prices,  for,  as  was  shown  in  Chapter  X,  there  is  no 
justification  for  one  section  of  unskilled  workers  being  better 
off  than  others.  Further,  supposing  that  employers  were 
abolished,  the  profits  of  those  using  cheap  labour  divided 
up  among  the  mass  of  their  employees  would  yield  but  little 
per  worker,  because  being  unskilled  the  average  wealth-pro- 
duction of  these  men  must  be  low.  Hence  such  unskilled 
productive  industries  advantage  the  employers  alone. 

We  now  come  to  that  much  larger  class  which  has  been 
led  to  imagine  that  it  benefits  by  Free  Trade,  viz.,  the  mass 
of  manual  workers. 

We  have  seen  that  this  system  benefits  employers  of  cheap 
labour,  and  such  labour  must  in  general  be  unskilled  because 
a  man  will  not  educate  himself  to  become  skilled  if  he  is  to 
receive  less  wages  than  if  he  were  unskilled.  A  skilled  worker, 
then,  being  one  who  produces  or  does  work  of  a  greater  value 
per  hour  than  an  unskilled — or  there  would  be  no  object  in 
education  or  skill — he  must,  in  fairness,  assuming  similar 
conditions  of  employment,  receive  more  wages  than  workers 
in  unskilled  industries  which  yield  a  lower  value  per  worker. 
His  superior  value  was  recognized  by  Napoleon  when  he 
criticized,  and  rightly,  the  Austrian  system  of  recruiting, 
whereby  the  blacksmith  and  the  carpenter,  instead  of  the 
ploughman  and  the  labourer,  were  torn  from  village  and  town. 
The  former  can  hold  a  plough,  whereas  the  latter  cannot  at 
once  replace  the  carpenter  at  his  bench,  or  the  blacksmith 
at  his  forge. 

The  unskilled  manual  workers,  compelled  irrevocably  to 
accept  the  lowest  wages,  can  only  benefit,  as  their  employers 
profess  that  they  can,  through  Free  Trade,  if  it  causes  prices 
to  fall  without  any  reduction  in  their  wages.  The  question 
immediately  arises,  therefore,  What  decides  the  relation 
between  wages  and  prices  ? 

Assuming  an  existing  distribution  of  wealth,  or  a  certain 
standard  of  wages,  the  purchasing  power  of  wages,  or  the 
relation  between  wages  and  prices,  is  decided,  not  by  exports 
or  imports,  but  by  the  quantity  and  value  of  goods  available, 

273 


THE  REAL  WEALTH  OF  NATIONS 

i.e.,  by  production,  which  is  their  sole  source,  and,  as  unskilled 
labour  produces  a  lower  value  per  hour  than  skilled,  a  transfer 
of  workers  from  skilled  to  unskilled  industries  will  result  in 
the  production  of  a  lower  aggregate  value,  and,  consequently, 
in  higher  prices,  or  a  reduction  in  the  purchasing  power  of 
wages.  Conversely,  an  increase  in  the  relative  number  of 
skilled  workers  would  result  in  a  greater  total  production,  thus 
causing  prices  to  be  cheaper  and  improving  the  relation  between 
wages  and  prices. 

We  discussed  this  fully  in  Chapters  VIII,  IX,  and  X,  and 
that  the  manual  workers  have  not  recognized  the  importance 
of  skilled  industries  to  themselves  is  due  to  their  acceptance  of 
that  fallacious  law  of  supply  and  demand,  according  to  which 
value  depends  upon  demand.  Were  this  true  there  would 
indeed  be  no  such  thing  as  skill,  and  no  unit  of  value  by 
which  to  measure  wealth,  whereas  we  have  shown  that  skill 
really  exists  and  can  be  measured  by  the  value  it  produces 
relatively  to  man's  daily  necessaries  of  life.  (See  also  Chap- 
ters III  and  IV.) 

If,  therefore,  the  development  of  a  nation's  skilled  indus- 
tries improves  the  relation  between  wages  and  prices,  we 
must  investigate  the  effect  thereon  of  a  policy  of  Free 
Trade. 

It  is  undeniable  that  competition  is  always  most  severe  in 
any  walk  of  life  where  the  reward  or  profits  are  highest,  for 
no  one  wants  to  compete  with  a  man  making  a  loss.  Both 
wages  and  profits,  that  is,  per  worker,  being  higher  in  skilled 
industries,  international  competition  must  be  far  more  intense 
in  these  than  in  unskilled  ones.  Indeed,  in  those  of  the  latter 
class  which  merely  provide  the  workers  with  their  necessaries 
of  life,  or  a  living  wage,  foreign  competition  wrould  entail 
starvation  for  the  foreign  workers,  unless  they  belonged  to 
nations  with  a  lower  standard  of  living,  in  which  case  com- 
petition may  indeed  be  severe,  as  witness  that  with  Japan  and 
India.  More  highly  developed  nations  must  not,  however, 
descend  to  their  level ;  they  must  develop  higher  industries,  for 
it  is  at  least  certain  that  if  a  nation  of  equal  civilization 
undersells  another  in  the  products  of  its  most  unskilled  labour 

274 


BENEFICIARIES  OF  FREE  TRADE 

it  must  do  so  at  a  national  loss,  even  though  some  individuals 
make  a  profit. 

It  is  also  a  fact  that  the  more  skilled  the  industry,  the  more 
capital,  brains,  machinery,  and  experience  are  necessary  to 
start  it,  and  the  greater  the  effect  of  a  larger  output,  so  that 
in  the  face  of  unlimited  foreign  competition,  and  without  a 
monopoly  of  even  the  home  market,  it  is  practically  impossible 
to  inaugurate,  or  certainly  to  develop  successfully,  skilled 
industries. 

As  an  example,  a  few  men  can  start  chicken-farming,  or  buy 
some  machines  and  make  metal  parts,  and  if  they  dispose  of 
their  produce  successfully  they  may  make  good.  If,  however, 
they  propose  to  make  a  complete  and  complicated  article,  as 
a  sewing-machine,  not  merely  must  they  sink  considerable 
capital  in  plant  and  tools  before  they  can  complete  a  single 
machine,  and  thereafter  keep  their  plant  fully  engaged,  but 
in  order  to  develop  and  keep  ahead  of  their  competitors  they 
must  maintain  a  staff  of  skilled  men,  constantly  experimenting. 
All  this  demands  capital,  from  which  outgoings  must  be  paid 
before  profits  are  recoverable. 

Thus  by  subjecting  the  home  market  for  the  products  of 
skilled  labour  to  the  fiercest  competition,  the  establishment  of 
high  value-producing  industries  is  prevented  and  capital  is 
driven  therefrom,  and  Free  Trade,  by  keeping  wages  low  and 
their  relation  to  prices  unfavourable,  stands  revealed  as  Pro- 
tection for  the  employers  of  unskilled  labour,  for  not  merely 
in  their  factories,  but  in  banks,  offices,  shops,  and  ships  is 
employed  a  mass  of  degraded  and  badly-paid  workers. 

A  critic  asked  :  "  Do  brains  require  protection  ?  "  and 
the  answer  is  obviously  in  the  affirmative,  for  what  is  their 
use  if  they  cannot  be  applied  ?  nor  can  an  unskilled  industry 
offer  equal  scope  for  their  employment. 

Only  England,  of  all  civilized  and  industrial  nations,  has 
surrendered  her  vital  industries  at  the  bidding  of  the  Free 
Trade  despots,  and  persistently  exports  the  products  of  un- 
skilled labour  in  exchange  for  those  of  skilled,  thus  losing 
leisure  or  wealth  at  each  transaction. 

That  the  British  working  classes  have  never  realized  the 

275 


THE  REAL  WEALTH  OF  NATIONS 

fraud  foisted  upon  them,  and  have  accepted  Free  Traders  as 
philanthropists,  is  due  to  the  fact  that  each  worker  has  been 
so  busy  thinking  about  his  antagonism  to  his  own  employer 
that  he  has  failed  to  see  that  all  employers  are  not  alike, 
and  that  his  interests  are  identical  with  those  of  employers 
of  skilled  labour.  The  workers  have  failed  to  recognize  that 
the  greater  the  production  obtainable  through  the  protection 
of  skilled  workers,  the  greater  is  the  available  share  for  all 
parties,  and  that  the  question  of  distribution  of  wealth  is 
distinct  and  a  matter  of  opinion  which  must  be  settled  on 
a  socialistic  basis.  Further,  they  have  overlooked  the  truth 
that  the  real  divergence  of  interest  is  found,  not  between 
employers  and  their  employees,  but  between  producers  and 
middlemen,  for  the  wealth  of  the  latter  is  obtained  at  the 
expense  of  the  former — yes,  of  both  masters  and  men. 

Unlimited  competition,  or  Free  Trade,  by  encouraging 
a  continual  increase  in  the  number  of  middlemen,  or  wealth- 
handlers,  thus  still  further  reduces  total  production  and  the 
share  of  wealth  to  which  each  individual  is  entitled,  conse- 
quently making  still  more  unfavourable  the  relation  between 
wages  and  prices,  and  particularly  affecting  the  conditions 
of  living  of  that  class  which  anticipates  amelioration  from 
Free  Trade,  viz.,  the  unskilled  workers. 

We  know,  however,  that  a  skilled  industry  is  one  in  which 
a  high  exchange  value  per  worker  is  produced  either  through 
manual  skill,  or  the  brains  of  inventors,  designers,  managers, 
etc.,  acting  through  unskilled  labour,  and  consequently  that 
it  benefits  a  nation  to  export  the  products  of  such  an  industry. 

It  is  true  that  high  prices,  due  to  fashion  or  demand, 
for  the  products  of  unskilled  labour  also  mean  a  high  exchange 
value  per  worker,  and  while  in  the  home  market  the  effect 
is  merely  to  benefit  an  employer  and  his  set  of  workers  at 
the  expense  of  the  community,  when  such  goods  are  exported 
the  whole  population  undeniably  benefits.  On  the  other 
hand,  not  only  is  fashion  often  fickle,  but  it  will  also  be  found 
that  the  export  prices  quoted  are  frequently  lower  than  those 
current  at  home,  in  which  case  much  of  such  advantage  is 
lost.  Hence  it  is  of  vital  importance  that  a  self-respecting 
276 


BENEFICIARIES  OF  FREE  TRADE 

nation  should  endeavour  to  export  the  products  of  skilled 
labour,  and  to  import  only  the  products  of  industries  less 
skilled  than  its  own,  or  to  exchange  the  labour  of  as  few  of 
its  own  for  that  of  as  many  as  possible  foreign  workers. 

A  nation  which  reserves  to  itself  its  skilled  industries 
will  be  prosperous,  will  enjoy  shorter  working  hours,  can 
rebuild  its  towns,  etc.,  but  one  which  follows  the  policy  of 
Free  Trade  will  see  itself  outstripped  by  other  nations,  and 
be  condemned  in  perpetuity  to  an  industrialism  such  as  that 
of  Lancashire,  which  is  a  disgrace  to  civilization. 

We  have  now  seen  how  in  a  Free  Trade  country  the 
employers  of  unskilled  labour  benefit,  while  the  misguided 
proletariat  and  the  rest  of  the  nation  lose,  and  the  result 
would  be  similar  were  Universal  Free  Trade  adopted.  Every- 
where the  employers  who  paid  the  lowest  wages  would  be  at 
an  advantage,  and  the  workers  the  world  over  would  be  forced 
into  competition  with  one  another  for  their  benefit,  and  that 
of  the  ever-growing  army  of  middlemen.  A  ship  with  a 
cargo  of  wheat  might  voyage  round  the  globe  seeking  whom 
it  might  devour,  or  the  highest  price  obtainable,  and  against 
a  higher  individual  profit  thus  realizable  must  be  set  the  loss 
of  labour-hours,  and  consequent  larger  consumption  of  neces- 
saries by  the  sailors,  etc.,  which  would  react  on  the  well-being 
of  the  whole  world.  The  vision  of  a  joyful  universe  wherein 
everyone  can  buy  at  the  cheapest  price  ignores  the  fact 
that  the  real  cost  depends  solely  on  the  quantity  of  labour 
used,  and  that  not  increase  in  trade,  but  increase  in  produc- 
tion, can  alone  benefit  the  world.  Further,  as  we  saw  in 
Chapters  XXII  and  XXIII,  Universal  Free  Trade  means  the 
most  intense  economic  war  among  all  nations,  with  victory  to 
that  one  content  with  the  lowest  standard  of  living.  Quern 
Deus  vult  perdere,  prius  elemental. 

Although  we  have  exposed  the  delusions  upon  which  the 
arguments  for  Free  Trade  are  based,  beginning  with  the 
fundamental  principles  of  Economics,  its  apologists  have 
evolved  a  set  of  catch  phrases  wherewith  to  confound  their 
enemies,  and  which  they  have  hitherto  found  very  effective, 
more  particularly  as  their  opponents  have  fought  with  weapons 

277 


THE  REAL     WEALTH  OF   NATIONS 

blunted  by  acceptance  of  the  law  of  supply  and  demand. 
We  propose,  therefore,  to  set  out  the  most  important  of  these 
spurious  axioms,  indicate  their  real  meaning,  and  expose  the 
flaws  in  their  present  application. 

I.   EVERY  NATION  SHOULD  PRODUCE  THAT  FOR  WHICH  IT  is 

BEST    SUITED. 

Perfectly  true,  and  the  basis  of  world  Economics.  But 
what  is  the  meaning  of  '  best  suited  *  ?  The  Free  Trader 
imagines  that  it  means  '  naturally  suited.'  Assuming  (the 
most  favourable  case  for  his  argument)  that  any  one  country 
is  pre-eminently  suitable  for  producing  one  article  and  could 
do  so  with  the  minimum  expenditure  of  energy  and  brains, 
it  would  thus  be  an  unskilled  industry  with  a  low  exchange 
value,  so  that  the  nation's  wealth  would  increase  but  slowly. 

Supposing  there  was  an  alternative  industry  for  which 
the  country  was  not  naturally  so  suitable,  and  which  required 
more  brains  and  skill,  the  exchange  value  of  this  industry 
would  be  higher,  so  that,  assuming  a  better  education,  the 
national  wealth-increment  would  be  more  rapid  (it  is  apparent 
that  education  will  have  no  value  unless  the  industry  can 
make  use  of  it),  and  the  nation  would  be  advantaged  by 
cultivating  the  alternative. 

In  general  a  country  is  not  pre-eminent  in  any  one  industry, 
and  even  if  it  were  and  could  exist  on  one  alone,  its  rivals 
would  not  long  permit  a  monopoly  of  a  best  industry  ;  in 
fact,  a  nation  that  has  left  a  '  natural '  for  a  '  better  '  industry 
will  find  other  countries  acting  similarly,  and  the  '  better  ' 
the  industry  the  greater  the  competition.  Thus,  no  nation, 
unless  it  be  prepared  to  accept  a  lower  standard  of  living, 
and  be  content  to  be  driven  by  Free  Trade  into  the  worst 
industries,  will  be  left  in  peaceful  possession  of  its  really  best 
ones,  unless  Nature  has  assured  it  a  monopoly. 

And  how  is  the  comparative  national  value  of  an  industry 
measured  ?  Not  by  the  manufacturer's  profit,  nor  by  his 
sales,  less  the  cost  of  wages,  materials,  etc.,  as  the  money 
representing  this  cost  may  remain  in  the  country,  but  by 
the  value  of  the  goods  produced  by  a  given  number  of  men 

278 


BENEFICIARIES  OF  FREE  TRADE 

less  the  value  of  material  and  labour  destroyed,  the  latter 
being  expressed  by  the  living  wage  of  the  workers  (allowance 
being  made  for  their  dependents  and  the  cost  of  their  up- 
bringing, and  for  provision  for  old  age). 

Thus  for  the  production  of  a  given  value  at  the  lowest 
national  cost  the  fewer  men's  lives  needed  the  better,  and 
this  condition,  as  we  know,  is  fulfilled  in  skilled  industries 
because  they  yield  the  highest  value  per  worker.  Further,  as 
high  wages  can  only  be  paid  permanently  in  such  industries, 
it  follows  that  these  are  the  best  both  for  the  nation  and 
for  labour,  and  that  they  may  be  other  than  those  originally 
most  suitable,  because  of  natural  conditions,  for  the  country. 
As  examples  we  may  cite  Switzerland,  which  has  protected 
and  developed  highly  skilled  but  quite  non-natural  industries, 
and  pre-War  Germany,  which,  while  urging  Britain  to  retain 
Free  Trade  and  her  low-grade  industries,  developed  her  own 
skilled  ones  and  obtained  almost  a  monopoly  in  these  because 
of  Britain's  Free  Trade. 

A  nation  is  therefore  best  suited  to  produce  that  which  through 
the  expenditure  of  the  smallest  amount  of  labour  yields  the 
highest  value  per  worker ;  notwithstanding  that  as  Free 
Traders  recognize  no  quality  in  industry,  this  is  not  their 
interpretation  of  the  term  '  best  suited.'  Free  Trade,  by 
allowing  competition  therein,  may  destroy  a  nation's  best 
industry. 

We  think  that  it  is  clear  from  the  foregoing  that  the 
value  of  an  industry  which  involves  the  destruction  of  much 
irreplaceable  raw  material  is  low,  and  that  a  nation's  raw 
material  should  not  be  used  up  irresponsibly,  nor  exported 
before  the  nation's  needs  and  future  interests  have  been  fully 
provided  for. 

2.    GOODS  ARE  PAID   FOR   BY   GOODS. 

And  so  they  are,  in  spite  of  anything  some  Tariff  Reformers 
may  say  to  the  contrary,  but  all  goods  are  not  of  equal 
cost  to  the  nation,  and  the  benefit  from  the  foreign  exchange 
depends  upon  the  nature  of  the  goods  exported,  and  what  is 
obtained  in  return. 

279 


THE  REAL  WEALTH  OF  NATIONS 

It  is  actually  possible  to  lose  on  an  exchange  of  goods. 
To  export  irreplaceable  raw  material,  or  only  slightly-manu- 
factured goods  (i.e.,  national  capital),  and  import  in  return 
highly-manufactured  goods  which  could  have  been  made  at 
home,  represents  loss  to  the  nation,  unless  the  value  received 
be  so  high  that  it  contains  the  whole  profit  which  would  have 
been  realized  from  their  utilization  in  all  branches  of  manu- 
facture at  home.  To  provide  for  this,  there  should  be,  for 
example,  a  huge  export  tax  on  coal. 

A  nation,  also,  loses  every  time  it  exchanges  goods  made 
by  a  hundred  of  its  workers  for  those  manufactured  by  fifty 
foreign  workers,  or  unskilled  for  skilled  labour,  so  that  the 
expression  "  goods  are  paid  for  by  goods  "  is  equivalent  to 
saying  "  One  cannot  obtain  something  for  nothing" 

3.  WEALTH   is  DUE  TO  FOREIGN  TRADE,  AND   THE  BALANCE 

OF    EXPORTS    OVER   IMPORTS   IS    A   MEASURE  OF  A    NATION'S 
PROSPERITY. 

Trade  means  exchange.  If  two  men  exchange  goods  of  the 
same  value,  which  obtains  the  better  of  the  bargain  ?  That 
one  who  paid  least  for  his  goods,  i.e.,  secured  the  biggest 
margin  of  profit,  or  produced  them  at  least  cost.  Which 
goods  cost  a  nation  least,  and  what  is  the  cost  of  produc- 
tion ?  It  is  not  the  sum  of  the  price  of  the  materials  plus 
the  wages  paid.  The  price  of  the  materials  remains  in  the 
country,  the  wages  paid  are  merely  transfers  of  tokens.  The 
cost  to  the  nation  is  the  sum  of  the  materials  destroyed  and 
the  labour  destroyed,  the  latter  being  indicated  by  the  living 
wage  of  the  workers.  Every  nation  should  therefore  manu- 
facture that  for  which  it  is  best  suited,  and  which  yields  the 
highest  value  at  lowest  cost,  as  defined  in  (i),  and  only  benefits 
by  foreign  trade  when  it  exchanges  an  article  of  lesser  pro- 
duction-cost for  another  which  would  cost  more  if  produced 
at  home.  The  cost  as  defined  is  lowest  relatively  to  the 
value  of  an  article  in  the  highly-skilled  industries  which 
produce  articles  of  high  exchange  value  for  the  minimum 
destruction  of  labour.  The  value  produced  is  least  in  un- 
skilled industries  which  consume  a  vast  amount  of  labour, 
280 


BENEFICIARIES  OF  FREE  TRADE 

or  human  lives,  or  in  industries  which  destroy  a  relatively 
large  quantity  of  irreplaceable  and  precious  raw  material. 

The  size  of  an  industry  is  thus  no  measure  of  its  value 
to  the  nation,  and  the  goods  which  cost  us  least  and  which 
we  should  export  are  the  products  of  highly-skilled  in- 
dustries. Wealth  may  thus  be  lost  through  foreign  trade  and 
export. 

A  permanent  yearly  balance  of  exports  over  imports  does 
show  that  a  nation  is  building  up  capital,  or  wealth,  abroad. 
But  there  is  no  virtue  in  accumulating  capital  abroad  until 
home  conditions  of  living  leave  nothing  to  be  desired.  Further, 
a  nation  can  only  realize  advantage  from  foreign  capital  by 
ultimately  receiving  goods  therefor,  so  that  an  increase  in 
wealth  abroad  is  no  more  beneficial  to  the  nation  than  it 
would  be  at  home,  nor  the  production  of  goods  for  export 
more  advantageous  than  manufacturing  them  for  use  at  home. 
The  dreariness  of  English  towns  compared  with  those  on  the 
Continent  is  a  striking  example  of  this  truth. 

The  balance  of  exports  over  imports  may  therefore  be  obtained 
at  the  expense  of  national  well-being.  Indeed,  production  for 
home  consumption  may  be  actually  less  through  an  increase 
in  exports,  and  consequently  the  nation  may  be  poorer,  and 
this  certainly  occurs  where  exports  include  irreplaceable  raw 
material,  as,  in  addition  to  the  capital  lost,  labour  is  wasted 
which  might  have  been  utilized  in  production.  Thus,  a 
balance  of  exports  over  imports  may,  until  the  value  of  coal, 
etc.,  has  been  subtracted  from  the  total,  conceal  an  actual 
loss  of  national  wealth. 

As  a  corollary,  a  nation  may  be  increasing  its  store  of  wealth 
and  wealth-production,  yet  have  a  reverse  balance,  or  greater 
imports  than  exports.  If,  indeed,  but  a  very  big  if,  we  produced 
nothing  for  our  own  consumption,  a  balance  of  exports  over 
imports  would  prove  that  our  production  was  greater  than 
our  consumption,  and  our  wealth  increasing,  yet  even  so  we 
should  be  no  better  off  than  in  producing  for  ourselves,  nor 
is  such  an  excess  of  production  of  more  value  abroad  than  at 
home. 

28l 


THE  REAL  WEALTH  OF  NATIONS 

4.  IF  GOODS  BE  BOUGHT  FROM  ABROAD  AT  A  PRICE  IO  PER 
CENT.  LESS  THAN  THAT  OF  THE  HOME  PRODUCER,  THE 
NATION  HAS  GAINED  IO  PER  CENT.,  BECAUSE  LESS  GOODS 
MUST  BE  EXPORTED  TO  PAY  FOR  THE  IMPORT. 

This  argument  ignores  the  fact  that  neither  individuals  nor 
nations  supply  at  cost,  and  that  a  nation  may  lose  profit 
through  not  itself  producing  what  is  imported.  This  lost  profit 
may  be  the  whole  difference  between  the  price  of  the  foreign 
goods  and  the  cost  as  defined  in  paragraph  3.  The  employer's 
loss  of  profit  is  not  the  whole  of  the  loss  ;  in  fact,  we  may  assume 
a  condition  in  which  the  employer  is  abolished,  or  is  making  no 
profit,  when,  if  his  be  a  skilled  industry  which  pays  high  wages, 
the  loss,  which  is  national,  falls  upon  labour.  The  workers'  loss 
is  the  difference  between  the  total  wages  they  receive  in  this 
industry  and  what  they  would  receive  in  the  lower  paid  industry 
into  which  they  would  be  forced  in  order  to  produce  goods 
wherewith  to  pay  for  those  imported,  and  it  may  amount  to 
the  whole  of  the  wealth-wage. 

Further,  the  first  industry  might  be  dependent  on  another 
highly -skilled  home  industry,  so  that  the  same  loss  would 
recur,  and  might  well  amount  to  30  per  cent,  or  40  per  cent, 
of  the  selling  price.  We  have  not  taken  into  consideration 
here  the  varying  destruction  of  raw  material  in  different 
industries.  This  influences  the  value  to  the  nation  of  ex- 
ports, and  has  to  be  considered  in  relation  to  the  desirability 
of  providing  employment.  Free  Trade  makes  no  distinction 
between  one  industry  and  another,  but  it  is  clear  that  loss 
through  non-production  depends  on  the  value  of  the  industry 
as  defined  in  (i),  and  that  if  it  were  unskilled  and  therefore 
low-waged,  or  if  it  destroyed  much  irreplaceable  raw  material, 
there  would  then  be  an  advantage  in  importing  such  foreign 
goods.  But  it  was  this  class  of  goods  which  the  Free  Traders 
exported. 

A  nation  may  thus  lose  much  more  than   10  per  cent,  in 
importing  highly -manufactured  goods  and  exporting  to  pay  for 
them  raw  material,  goods  approximating  to  raw    material,   or 
the  products  of  low-waged  industries. 
282 


BENEFICIARIES  OF  FREE  TRADE 

5.  LABOUR  DISPLACED  FROM  ONE  INDUSTRY  WILL  BE  ABSORBED 

BY  ANOTHER. 

Certainly,  if  it  does  not  emigrate.  If,  however,  it  is  driven 
to  other  lands  all  its  power  of  wealth-production  is  lost  to  its 
country.  Presuming  that  it  does  not  emigrate,  the  industry 
into  which  it  will  be  driven  must  generally  be  of  a  lower  grade — • 
that  is,  one  which  pays  less  wages — because  not  only  would 
labour  already  have  been  attracted  to  it  had  its  wages  rates 
been  satisfactory,  but  as  competition  is  more  severe  in  a  better 
industry,  it  can  only  be  avoided  by  descending  to  a  worse 
one.  The  better  paid  and  skilled  industries  are  the  ones  that  suffer 
most  through  the  unlimited  competition  of  Free  Trade. 

6.  A  DUTY  ON  PARTLY-MANUFACTURED   GOODS  WOULD    RUIN 

THOSE  INDUSTRIES  WHICH  ARE  DEPENDENT  UPON  THEM, 
AND  PROTECTION  WILL  PREVENT  A  NATION  COMPETING 
IN  NEUTRAL  MARKETS. 

This  is  a  favourite  argument  with  British  Free  Traders,  but 
why  should  such  an  industry  purchase  its  raw  material  at  a 
cheaper  price  than  similar  industries  in  a  protected  country  ?  // 
it  cannot  live  without  this  advantage,  the  industry  is  unsuitable  for  the 
country.  If  it  can,  the  individual  manufacturer  is  merely  greedy. 

If  British  workmen  were  paid  higher  wages  than  in  other 
countries  and  had  a  better  standard  of  living,  the  individual 
manufacturer  would  be  handicapped,  but  in  protected  countries, 
where  necessary,  he  is  assisted  by  '  drawbacks  '  which  cost 
the  nation  nothing  and  merely  amount  to  one  section  helping 
another.  The  policy  is  designed  not  to  increase  the  employer's 
profits,  but  to  enable  him  to  pay  the  high  wages  which  other- 
wise might  handicap  him.  As  protected  countries  compete 
with  Britain  successfully  in  foreign  markets,  particularly  in 
goods  of  high  value  as  defined  in  paragraph  3,  the  export  of 
which  alone  benefits  a  nation,  it  is  obvious  that  duties  cannot 
be  a  real  handicap — in  fact,  it  is  because  they  have  protected 
their  skilled  industries,  and  have  thus  been  able  to  develop 
them,  that  protected  countries  can  cheaply  produce  a  surplus 
for  export. 

283 


THE  REAL  WEALTH  OF  NATIONS 

The  explanation  is  indicated  in  paragraph  3.  The  national 
cost  of  production  being  the  sum  of  the  labour  and  material  de- 
stroyed, and  thus  independent  of  wages  or  artificial  variation  in 
prices ,  not  Protection  but  restriction  in  the  value  of  output  increases 
the  real  cost  and  prevents  a  nation  from  competing  in  neutral 
markets. 

7.  TEXTILES,  SHIPPING,  AND  COAL  ARE  BRITAIN'S  THREE 
GREATEST  INDUSTRIES,  AND  HER  PROSPERITY  DEPENDS 
UPON  THEM. 

The  true  greatness  of  an  industry  is  measured  by  the  value 
produced  per  worker,  and  this  to-day  is  low  in  all  three 
industries,  notwithstanding  their  size.  Thus  Britain's  pros- 
perity depends  upon  their  diminution.  The  coal  industry 
produces  no  wealth  at  all,  and  the  untaxed  export  of  coal 
amounts  to  squandering  the  nation's  capital.  In  an  exchange 
of  coal  for  wheat,  ignoring  any  question  of  profit,  the  labour 
of  discontented  miners  is  exchanged  for  that  of  healthy 
agriculturists,  and  whereas  the  cost  of  the  latter  is  merely  so 
many  hours'  work,  for  next  year  they  can  reproduce  their 
wheat,  the  cost  of  mining  coal  is  the  labour  and  the  coal,  which 
is  not  replaceable.  Through  the  export  of  coal,  therefore, 
Britain  loses  its  calorific  value,  which  could  have  been  best 
realized  in  a  home  skilled  industry,  and  were  this  export 
reduced,  more  labour  would  be  available  for  productive  work 
at  home  and  the  coal  would  be  correspondingly  conserved  for 
future  use. 

Free  Traders  tell  us,  however,  that  ships  would  then  go 
back  empty  to  foreign  parts,  freights  would  rise,  and  with  them 
the  cost  of  commodities,  but  they  have  forgotten  that  goods 
are  paid  for  by  goods  and  that  we  must  produce  something 
else  to  pay  for  our  wheat,  unless  indeed  we  grow  it  ourselves, 
when  still  less  shipping  would  be  necessary  and  some  of  our 
sailors  and  dock  labourers  might  turn  agriculturists  ! 

That  Britain  does  in  fact  exchange  coal  for  labour,  or  pawn 
her  shirt  to  obtain  food,  is  well  illustrated  by  the  following 
reply  of  Sir  Auckland  Geddes  in  the  House  of  Commons  to  a 
question  by  Colonel  Burdon  as  to  the  principal  countries  to 

284 


BENEFICIARIES  OF  FREE  TRADE 

which  British  coal  is  exported  and  the  chief  imports  received 
from  those  countries.1 

France :  Wines  and  spirits,  silk  manufactures,  wood, 
leather,  chemical  manufactures,  fancy  goods. 

Italy  :  Hemp,  silk  fabrics,  fruit,  and  vegetables. 

Spain  :  Iron  ore,  lead,  copper,  fruit,  and  vegetables. 

Sweden  :  Timber,  wood-pulp,  iron,  paper,  iron  ore. 

Norway  :  Wood-pulp,  timber,  paper,  fish. 

Denmark  :  Eggs,  butter,  bacon. 

Egypt :  Cotton,  cotton-seed,  onions,  eggs. 

Algeria :  Iron  ore,  zinc  ore,  vegetable  fibres  for  paper- 
making. 

Argentina  :  Grain,  meat,  hides,  butter,  linseed,  dyeing  and 
tanning  materials  and  extracts. 

It  is  obvious  that  we  could  have  produced  many  of  these 
commodities  ourselves,  thereby  conserving  our  coal  and  at  the 
same  time  transforming  our  discontented  wealth-destroyers 
into  wealth-producers. 

The  export  of  its  coal  impoverishes  a  nation,  as  does  that  of 
the  products  of  unskilled  and  low-waged  labour,  so  largely  employed 
in  the  textile  and  shipping  industries. 

8.  FREE  TRADE  KEEPS  PRICES  DOWN. 

That  is  true,  but  it  keeps  wages  down  still  more,  and  it  is 
only  the  relation  between  the  two  that  really  matters. 

Free  Traders  say  that  they  must  have  cheap  labour,  and 
that  anything  which  increases  the  home  cost  of  production  is 
bad  for  the  nation.  If  so,  high  wages  must  be  bad,  but  work- 
men in  the  West  will  not  accept  the  wages  paid  in  the  East. 
High  wages  may  be  a  handicap  for  the  individual  employer 
and  his  workmen  in  a  Free  Trade  country,  but  not  in  a  pro- 
tected country,  where  the  market  for  an  industry  is  assured, 
and  if  production  of  articles  representing  a  high  value  per 
worker  be  increased,  which  can  only  be  done  under  Protection, 
wages  will  go  up  more  than  prices.  For  what  are  prices  ? 

In  a  state  that  is  stationary  (one,  that  is,  which  does  not 

1  The  Times,  August  5,  1919. 

285 


THE  REAL  WEALTH  OF  NATIONS 

permit  of  profiteering,  politely  termed  the  law  of  supply  and 
demand,  and  in  which  the  distribution  of  wealth  is  fixed)  the 
total  cost  of  a  man's  daily  necessaries  of  life  must  not  exceed 
the  value  of  that  share  of  the  wealth  produced  by  all  to  which 
an  unskilled  workman  is  entitled.  The  greater  the  proportion 
of  skilled  to  unskilled  labour,  the  higher  will  be  the  average 
value  per  worker  of  the  wealth  produced,  and  therefore  the 
greater  wealth-increment  per  worker,  after  allowing  for  all 
necessaries  of  life.  The  greater  also  the  proportion  of  producers 
to  non-producers,  the  larger  will  be  that  share  of  the  wealth  pro- 
duced to  which  both  unskilled  and  skilled  workers  are  entitled. 

Without  alteration  in  the  present  distribution  of  wealth, 
the  effect  of  which  on  the  large  number  of  workers  would  be 
much  less  than  many  seem  to  think,  the  relation  between  wages 
and  prices  can  most  readily  be  made  more  favourable  by 
developing  skilled  industries  in  place  of  unskilled,  and  by 
decreasing  the  number  of  non-producers.  Obviously  any 
higher  efficiency  in  production  will  also  help. 

Free  Trade,  by  preventing  the  establishment  of  skilled 
industries,  compels  labour  to  remain  in  those  which  are  un- 
skilled and  badly  paid,  and  which,  producing  a  less  value  per 
worker,  lower  the  amount  of  wealth  available  for  distribution. 
This  is  still  further  reduced  by  the  ever-increasing  army  of 
middlemen,  who  flourish  on  this  policy,  and  we  conclude  that 
Free  Trade,  by  diminishing  the  wealth  share  of  each  individual, 
lowers  the  purchasing  power  of  money,  and  increases  the  real 
price  of  commodities. 

9.  FREE  TRADE  BENEFITS  THE  WORKING  CLASSES. 

Not  if  wealth  arises  from  production,  for  it  is  that  which 
stimulates  the  latter  which  must  benefit  the  working  classes, 
assuming  that  the  distribution  of  wealth  remains  unaltered. 

As  Protection  helps  skilled  industries,  which  create  wealth 
most  rapidly,  it  stimulates  production  and  therefore  increases 
the  wealth  of  the  nation,  in  which  the  workers  will  and  must 
share.  This  is  evidenced  by  the  higher  wages  which  can  only 
be  paid  permanently  in  such  industries,  and  in  several  protected 
countries  the  workers  were  better  off  on  the  average,  although 
286 


BENEFICIARIES  OF  FREE  TRADE 

this  did  not  apply  to  Germany,  where  in  pre-War  days  the 
distribution  of  the  wealth-increment  was  much  less  favourable. 

Every  protected  country  has  developed  either  new  or 
highly-skilled  industries,  and  as  it  is  difficult  to  do  this  in 
the  face  of  unfair  and  unrestricted  competition,  Free  Trade 
England  has  had  to  remain  content  mainly  with  low-grade 
and  low-waged  industries. 

Free  Trade  is  really  a  wrong  form  of  Protection  :  it  protects 
the  millionaire  employers  of  unskilled  or  semi-skilled  labour, 
and  allows  individuals  to  export  irreplaceable  raw  material  to 
the  detriment  of  the  State,  and  thus,  by  reducing  the  wealth  of 
the  nation,  harms  the  working  classes  most  of  all. 

10.  PROTECTIVE  DUTIES  ARE  DETRIMENTAL  TO  THE  CONSUMER. 

All  are  consumers,  and  live  on  the  producers,  who  are 
themselves  the  largest  consumers.  The  producers  are  not 
the  individual  manufacturers,  but  they  and  the  whole  of 
labour  engaged  on  production. 

All  consumers  depend  upon  the  producers  for  their  living, 
they  have  no  other  means  of  support,  whence  it  is  evident  that 
the  wealth  created  by  the  latter  must,  nolens  volens,  gradually 
filter  through  the  whole  population.  Thus,  if  Protection 
stimulates  the  production  of  wealth,  by  helping  the  skilled  indus- 
tries, it  must  benefit  all,  and  '  all '  are  the  consumers. 

11.  EVERYTHING    is    MORE    EXPENSIVE    IN    A    PROTECTED 

COUNTRY      AND      THE      DISTRIBUTION      OF      WEALTH      LESS 
FAVOURABLE. 

This  is  only  apparent,  for  the  first  effect  of  Protection,  or 
any  artificial  increase  in  prices,  or  wages,  is  to  depreciate 
the  home  currency.  Assuming,  however,  no  alteration  in 
the  distribution  of  wealth  (relation  of  wages  to  profit),  no 
one  would  be  better  or  worse  off  than  before,  and  if  the 
effect  of  Protection  were  to  increase  the  value  produced  per 
head,  which  follows  the  transfer  of  labour  from  unskilled  to 
more-skilled  industries,  more  commodities  would  be  available 
in  return  for  an  hour's  work,  and  the  relation  between  wages 
and  prices  would  be  improved  thereby.  (The  fact  that 

287 


THE  REAL  WEALTH  OF  NATIONS 

English  money  has  not  equal  purchasing  power  in,  say,  the 
United  States  is  due  to  a  fraudulent  rate  of  exchange — see 
Chapter  XVII.)  The  working  classes  particularly  would  now 
be  in  a  better  position,  as  they  share  first  in  the  national 
wealth-increment  through  the  higher  wages  paid  to  skilled 
workers,  whereas  under  Free  Trade,  where  certain  individuals 
amass  wealth  at  the  expense  of  a  very  large  number  of  un- 
skilled and  badly  paid  workers,  the  distribution  of  wealth  is 
most  unfavourable.  The  measure  of  a  nation's  prosperity 
is  the  wealth-increment  per  head  of  the  population,  excluding 
interest,  which  is  due  to  wealth  previously  accumulated,  and 
the  apparent  high  prices  of  commodities  in  a  protected  country 
afford  no  proof  that  articles  are  more  expensive  relatively  to  wages, 
the  relation  between  wages  and  prices  with  a  constant  wealth- 
distribution  being  decided  solely  by  the  output  per  worker.  (See 
also  paragraph  8.) 

12.   THE    REVENUE     FROM     PROTECTIVE    DUTIES     IS     INSIGNIFI- 
CANT AND    NOT    WORTH    THE    COST    OF    COLLECTION. 

The  benefit  from  Protection  would  exist  if  there  were  no 
revenue  whatever,  and  if  the  consumer  pays  the  whole  of  the 
import  duty  there  is  no  gain,  such  revenue  being  only  a 
form  of  taxation. 

The  real  benefit  from  Protection,  obtainable  also  from 
prohibition,  when  there  would  be  no  revenue,  arises  from 
better  conditions  for  production — that  is,  security  for  capital, 
return  for  enterprise,  certainty  of  the  home  market,  and 
continuity  of  output.  For  skilled  industries  and  modern 
methods  of  manufacture  such  conditions  are  essential,  no 
efficient  production  being  possible  if  they  be  not  observed. 
Protective  duties  thus  increase  the  wealth-increment  of  a  nation, 
not  by  the  amount  of  revenue  but  by  reserving  to  itself  its  home 
market  in  the  most  profitable  and  competitive  industries. 

Having  shown  that  the  flaws  in  the  arguments  of  Free 
Traders    arise    from    acceptance    of    fundamental    economic 
fallacies,  it  follows  logically  that  any  economic  system  which 
fails  to  repudiate  them  must  be  equally  at  fault. 
288 


BENEFICIARIES   OF  FREE  TRADE 

Thus  the  Fair  Traders,  the  Protectionists,  the  Tariff  Re- 
formers, or  whatever  they  term  themselves,  are  all  equally 
responsible  for  the  absurdities  to  which  we  have  called  atten- 
tion. They  have  not  detected  the  faulty  reasoning  of  their 
opponents,  although,  while  accepting  it,  they  deny  its  inevit- 
able consequences. 

For  instance,  the  claim  that  Protection  results  in  higher 
wages  without  a  corresponding  increase  in  prices  is  untenable 
if  wealth  be  due  to  trade  or  the  law  of  supply  and  demand 
be  admitted.  According  to  this  law,  the  value  of  the  output 
of  an  industry  depends  on  the  demand  for  the  product,  and 
not  solely  upon  the  producers,  whence,  demand  being  variable, 
one  industry  is  as  good  as  another,  and  it  would  be  impossible 
to  say  that  the  transfer  of  labour  to  any  particular  class  of 
industries  would  permanently  yield  an  increase  in  national 
wealth,  upon  which  higher  wages  with  an  unaltered  distribution 
must  depend. 

On  the  other  hand,  if  wealth  can  be  measured  immediately 
on  its  production  by  our  unit  of  value  N,  an  increase  in  the 
value  produced  is  clearly  due  to  the  brains  and  skill  engaged 
in  production,  whence  the  development  of  skilled  industries 
under  Protection  will  permanently  increase  the  value  produced 
per  worker,  and  consequently  justifies  the  claim  of  an  advance 
in  wages  greater  than  that  in  prices. 

The  further  suggestion  that  Protection  would  of  itself 
reduce  unemployment  is  equally  fatuous,  for  imports  are 
not  the  cause  thereof,  corresponding  goods  having  to  be 
made  for  export.  Unemployment  is  not  due  to  over-pro- 
duction, but  solely  to  wrong  production,  and  only  through 
stimulation  of  the  skilled  and  new  industries,  for  the  products 
of  which  the  demand  is  insatiable,  will  Protection  have  the 
desired  result. 

Most  present  advocates  of  Protection,  however,  are  neces- 
sarily silent  on  the  '  quality  '  of  industries,  having  accepted 
the  axiom  that  national  wealth  is  due  to  trade.  Some  even 
hold  that  goods  are  not  paid  for  by  goods.  Of  course,  were 
that  true,  a  nation  could  increase  its'  output  by  exporting 
goods,  since  it  would  not  have  to  accept  their  equivalent 

289 


THE  REAL  WEALTH  OF  NATIONS 

in  commodities  in  return.  As  a  nation  is  not  able  to  eat 
foreign  money,  however,  it  certainly  would  not  be  benefited 
by  doing  work  for  which  it  received  nothing  in  exchange. 

Again,  apparently  these  politicians  would  protect  any 
industry  which  was  influential  enough  to  command  notice, 
without  reference  to  its  quality,  with  the  result  that  certain 
unskilled  workers  might  receive  higher  wages  than  some 
skilled  workers,  which  would  tend  to  draw  labour  from  the 
wealth-producing  industries.  Being  indifferent  to  the  national 
value  of  an  industry,  these  politicians  might  also  attempt 
to  produce  that  for  which  their  country  is  unsuited,  thus 
wasting  labour  and  reducing  production. 

History  will  doubtless  admit  honesty  of  purpose  in  Joseph 
Chamberlain  ;  he  died  with  his  aspirations  unfulfilled  because 
he  failed  to  apprehend  the  real  justification  for  Protection. 

That  goods  are  paid  for  by  goods  or  services  is  no 
guarantee  that  a  nation  is  advantaged  through  trading  with 
others.  The  prices  of  goods  exchanged  must,  of  course,  be 
equal,  but  if  those  of  A  represent  the  labour  of  one  hundred 
men  for  one  week,  and  those  exchanged  by  B  only  that  of  fifty 
men  for  one  week,  A  loses  on  every  such  transaction,  loses 
leisure  and  the  resulting  power  to  produce  other  goods  or  to 
enjoy  life.  It  is  true  that  individual  exporters  and  importers 
benefit,  but  they  do  so  at  the  expense  of  the  workers,  and 
even  a  balance  of  exports  over  imports  is  no  more  proof  that 
a  nation  is  gaining  through  its  foreign  trade  than  a  balance 
in  an  account  between  two  traders  proves  that  the  debtor 
has  the  worst  of  the  bargain.  Gain  depends,  in  this  case, 
as  with  two  nations,  on  the  respective  costs  of  purchase,  or 
production. 

Here,  indeed,  we  arrive  at  Chamberlain's  fundamental 
error.  He  had  not  realized  that  the  national  cost  of  produc- 
tion (ignoring  irreplaceable  raw  material)  is  the  workers' 
consumption  of  necessaries,  and  therefore  that  the  wealth 
produced  per  worker,  or  the  national  value  of  an  industry, 
is  the  value  produced  less  this  cost.  Consequently  he  failed 
to  appreciate  that  although  goods  are  paid  for  by  goods,  it 
does  not  follow  that  a  nation  necessarily  benefits  by  sending 
290 


BENEFICIARIES   OF  FREE  TRADE 

goods  abroad.  The  same  argument  which  proves  that  a 
nation  loses  by  exporting  the  products  of  unskilled  labour 
applies  to  services,  for  no  one  can  seriously  believe  to-day 
that  carrying  goods  about  the  world  produces  a  high  value 
per  sailor,  dock  labourer,  or  drudging  clerk,  even  though  ship- 
owners and  export  merchants  be. millionaires. 

Chamberlain's  failure  to  appreciate  these  considerations 
arose  from  his  ignorance  of  the  essential  distinction  between 
necessaries  and  luxuries,  with  his  consequent  acceptance  of 
the  absurd  theory  that  value  depends  upon  demand.  As  a 
further  result  of  this  confusion,  Chamberlain  omitted  to 
note  the  fact  that  while  Free  Trade  hinders  the  skilled 
industries,  it  actually  benefits  the  unskilled,  thus  keeping 
down  the  wealth  produced  per  worker,  and  paying  for  the 
foreign  labour  of  the  few  by  home  labour  of  the  many. 

Chamberlain  failed  because  he  had  not  himself  fathomed 
the  principles  of  Economics,  and  therefore  did  not  realize 
that  only  those  industries  need  protection  which,  as  they 
yield  the  greatest  wealth  per  worker,  are  naturally  the  most 
subject  to  competition.  Instead  of  advocating  Preference 
for  the  British  dominions  and  the  payment  of  import  taxes 
by  foreigners,  which  is  impossible,  Chamberlain  should  have 
advocated  Preference  for  home  producers,  the  right  to  its 
home  market  for  the  products  of  the  nation's  skilled  industries, 
the  growth  of  which,  without  alteration  in  wages  or  wealth- 
distribution,  benefits  the  whole  community  through  the 
greater  wealth-production  per  worker,  and  consequent  increase 
in  the  purchasing  power  of  money. 

As  another  example  of  economic  confusion,  we  might  cite 
a  statement  of  Mr  George  Russell,1  who  is  interested  in  the 
Irish  co-operative  movement,  to  the  effect  that  the  sole 
advantage  to  Ireland  of  a  protective  duty  would  be  the 
benefiting  of,  say,  the  Irish  butter-makers  at  the  expense 
of  their  fellow-countrymen.  It  is  true  that  if  these  producers 
increased  their  prices  (but  why  should  they  if  Ireland  already 
has  a  monopoly  of  her  home  market  ? — and,  if  not,  the  output 
of  butter  will  increase),  successfully  avoided  payment  of 
1  See  an  article  in  The  Irish  Homestead,  February  i,  1919. 

291 


THE  REAL  WEALTH  OF  NATIONS 

any  taxes,  and  prevailed  on  all  other  Irish  producers  to 
refrain  from  altering  their  prices,  they  would  be  the  sole 
beneficiaries,  but  this  protective  duty,  if  it  only  caused  prices 
to  advance,  would  depreciate  the  value  of  money  generally, 
and  therefore,  unless  we  admit  an  alteration  in  the  distribu- 
tion of  wealth,  which  is  preventable,  the  butter-makers  would 
ultimately  have  to  pay  more  for  their  bread,  boots,  clothes, 
etc.  Further,  these  Irish  butter-makers  do  not,  in  fact, 
suffer  from  competition,  so  that  unless  they  increased  their 
efficiency  and  output  Protection  would  be  of  no  benefit 
to  the  whole  community,  and  would  merely  have  depreciated 
the  value  of  money. 

If,  however,  England  now  adopted  Protection,  and  decided 
to  compete  with  Ireland  in  her  own  market — ignoring  for  a 
moment  that  the  Irish  climate  is  particularly  favourable  to 
the  industry — she  should  be  able  to  undersell  her  and  ruin 
her  butter  industry,  because,  having  already  a  larger  market, 
she  would  have  Ireland's  in  addition.  It  is  evident,  there- 
fore, that  this  advocate  of  Free  Trade  for  an  already  naturally 
protected  industry,  falling  into  the  trap  of  considering  the 
effect  of  two  variables  simultaneously,  i.e.,  two  countries 
with  different  natural  advantages  under  Free  Trade  and 
Protection,  has  not  shown  the  effect  of  the  latter,  but 
merely  that  to  introduce  Protection  where  it  is  already 
operating  would  be  futile. 

The  writer  of  the  same  article  suggests  that  stimulation 
of  intelligence  and  technical  skill  is  an  alternative  to  a  policy 
of  Protection,  forgetful  of  the  fact  that  skill  is  useless  without 
industries.  If  a  protected  England  undersold  her,  the  brains 
of  Ireland  would  find  less  employment  in  her  butter  industry, 
and  the  latter  may  not  be  able  to  exist  at  all  without  Pro- 
tection, which  is  to  be  demonstrated,  not  by  considering  one 
nation  as  more  clever  than  another,  but  both  as  equally  so. 

Writing  on  the  subject  of  unemployment,  although  failing 
to  indicate  its  cause  or  to  suggest  a  cure,  Sir  Hugh  Bell  makes 
the  statement  in  a  pamphlet  issued  by  the  Free  Trade  Union 
that  in  his  experience  it  has  never  been  possible  to  find  10,000 
able-bodied  men  available,  and  thereby  seeks  to  disprove 
292 


BENEFICIARIES   OF   FREE  TRADE 

the  existence  under  the  Free  Trade  regime  of  any  undue 
unemployment.  Needless  to  say,  Sir  H.  Bell,  being  interested 
in  the  spoliation  of  the  nation's  irreplaceable  raw  material, 
coal  and  iron  ore,  and  employing  masses  of  unskilled  or  semi- 
skilled labour,  much  of  it  working  under  distressing  conditions, 
has  not  been  called  upon  to  find  men  for  highly  skilled  and 
well-paid  industries  working  in  favourable  surroundings,  and 
has  failed  to  be  struck  by  the  fact  that  Free  Trade  prevents 
their  establishment.  Indeed,  as  his  writings  show  (they  are 
circulated  by  the  Free  Trade  Union),  Sir  H.  Bell  does  not 
recognize  any  advantage  in  one  industry  over  another,  and 
believes  that  the  squandering  of  a  nation's  capital,  coal  and 
iron  ore,  increases  its  wealth.  We  have  never  been  able  to 
understand  why  such  '  economists '  do  not  advocate  the 
export  of  the  nation's  surface  soil ! 

We  must  not  leave  the  fascinating  subject  of  economic 
delusions  without  referring  to  Bolshevism,  that  shadow  which 
threatens  the  downfall  of  civilization.  If,  indeed,  the  ascent 
of  man  be  due  to  the  work  of  superior  men,  the  production 
of  wealth  to  their  brains  or  skill,  the  threat  of  the  least-skilled 
workers  throughout  the  world  to  seize  all  wealth  and  control 
its  production  and  distribution  portends  a  descent  to  the 
level  of  the  lowest.  To  talk  glibly  about  improved  conditions 
of  living  and  a  better  distribution  of  wealth  without  recognizing 
the  source  of  the  latter  is  charlatanism.  When  a  man  jumps 
into  a  river  to  save  a  life  we  do  not  decorate  the  spectators  ; 
because  some  men  commit  crimes,  we  do  not  put  all  under 
restraint ;  the  school  curriculum  is  not  framed  for  the  most 
stupid  or  the  laziest,  nor  are  the  prizes  distributed  equally. 
Thus,  before  any  distribution  of  wealth  is  made,  its  creators 
must  be  acknowledged,  and  it  is  for  them  to  decide  how  they 
will  share  with  their  less  endowed  fellows,  not  for  the  latter 
to  dictate  this.  While  no  one  would  suggest  that  the  present 
distribution  of  wealth  corresponds  to  man's  obligation  to 
his  fellows,  nor  hold  that  huge  individual  fortunes  are  desir- 
able in  the  interests  of  the  community  or  beneficial  to  their 
possessors,  it  is  undeniable  that  a  higher  altruism  cannot  be 
anticipated  from  the  less-gifted  than  from  the  men  of  brains 

293 


THE  REAL  WEALTH  OF  NATIONS 

or  skill,  nor  that  the  production  of  wealth  will  increase  more 
rapidly  if  its  fruits  be  in  the  hands  of  those  least  able  to 
create  it. 

True,  many  dogs  have  peculiar  ideas  upon  the  distribution 
of  wealth,  and  to  see  a  bone  in  the  mouth  of  another  sets  up 
an  irresistible  impulse  to  seize  it,  but  the  survival  of  the 
fittest  is  a  purely  animal  law,  and  rule  by  those  most  fit  is 
the  first  condition  of  good  government.  Indeed,  it  is  better 
for  a  community  to  be  controlled  by  one  super-man  than  by 
mediocrity  or  ignorance,  which  are  at  least  equally  suscept- 
ible to  the  lure  of  self-aggrandizement  at  the  expense  of  the 
governed. 

Incredible  as  it  may  seem,  the  origin  of  this  threatened 
assault  on  civilization  is  found  in  the  teachings  of  the  economists 
themselves,  who,  failing  to  discern  the  true  source  of  wealth  in 
brains  or  skill,  have  encouraged  the  growth  of  a  delusion  in 
the  manual  workers  that  they,  the  cogs  in  the  mighty  machine, 
are  the  wealth-producers.  If  value  be  due  to  demand,  wealth 
does  not  exist  through  the  labour  of  the  producers,  particularly 
the  most  skilled,  but,  for  instance,  through  that  of  the  transport 
workers,  always  among  the  most  unskilled,  or  even  through 
that  of  beasts  of  burden,  who  might  thus  equally  well  claim 
that  they  too  are  robbed  by  their  drivers. 

Truly  the  most  flagrant  robbery  prevailing  is  that  of  pro- 
ducers by  the  handlers  of  wealth.  Misled  by  the  economists, 
the  manual  workers  tolerate  this  because  they  fail  to  dis- 
tinguish Codlin  from  Short,  those  who  increase  the  wealth  of 
the  world — and  therefore  their  share — by  production  from 
those  who  reduce  this  wealth  through  handling  it,  and  whose 
profit  decreases  the  amount  divisible. 

Bolshevism  is  not  a  genuine  cry  for  greater  wealth-pro- 
duction, less  waste,  and  better  distribution,  but  an  attempt  of 
the  proletariat,  springing  from  the  false  principles  of  so-called 
Political  Economy,  to  seize  the  reins  of  power  and  terrorize  the 
world  by  brute  force,  and  those  who  believe  in  the  right  of 
every  human  being  to  decent  and  ever-improving  conditions 
of  living  will  discern  in  a  triumphant  Bolshevism  the  destruc- 
tion of  all  their  hopes. 
294 


BENEFICIARIES   OF  FREE  TRADE 

A  better  world  will  not  be  brought  into  existence  by  brute 
force,  nor  by  threats,  for  no  permanent  solution  can  arise 
from  compulsion  which  denies  reason,  and  the  antidote  for 
Bolshevism  lies  in  the  education  of  the  masses  as  to  the 
conditions  of  creation  and  the  identity  of  the  real  producers 
of  that  wealth  of  which  they  crave  a  share.  This  being 
effected,  a  long  last  honour  shall  be  rendered  where  honour 
is  due. 

While  the  cinema  is  the  best  vehicle  for  economic  pro- 
paganda, the  truths  of  Economics  can  also  be  explained 
simply  in  conversational  form,  of  which  the  following  is  an 
example  : 


PROTECTION  AND  THE  WORKERS 

But   our   bread   will   cost   us    What  does  it  cost  you  now  ? 
more. 

What  is  the  value  of  five 
shillings  ? 

So  you  think  its  value  con- 
stant, but  did  you  find  it 
so  during  the  War  ? 

It  is  evidently  time,  then, 
that  you  really  thought 
about  it,  so  tell  me,  how  do 
you  earn  five  shillings  ? 

Then  the  value  of  five 
shillings  is  three  hours  of 
your  work,  and  during  the 
War  you  were  getting  more 
than  one  shilling  and  eight- 
pence  an  hour,  but  were 
you  better  off  ? 

And  you  found  that  the  more 
wages  rose  the  higher  prices 
soared  ? 

295 


Five  shillings  a  week. 
Five  shillings,  of  course. 

Well,  no. 

By  working  three  hours. 


No,  hardly  at  all. 


THE  REAL  WEALTH  OF  NATIONS 


That  is  true. 


I  don't  know. 


Yes,    but    food    is    the    first 
thing  of  all. 


I  suppose  I  should, 


Of  course,  if  it  were  possible. 

How? 

But   would   that   not   merely 

benefit  the  employers  ? 
296 


Well,  instead  of  repeating 
that  '  our  food  will  cost 
us  more,'  which  you  have 
been  doing  like  parrots  for 
twenty-five  years,  tell  me 
how  the  cost  of  your  food 
can  be  reduced. 

Well,  it  is  obvious  that  by 
sweating  the  agricultural 
worker  your  food  will  cost 
you  less,  and  is  not  that 
exactly  what  you  are  trying 
to  do  ?  You  want  high 
wages  for  yourselves,  which 
means  that  the  price  of 
the  article  you  produce 
must  be  high,  and  must 
be  paid  by  the  agricultural 
worker,  who  has  to  buy 
your  product  just  as  you, 
have  to  buy  food. 

It  is  well  that  you  realize 
that,  although  you  haven't 
worried  about  its  produc- 
tion, but  you  do  not  live 
on  food  alone,  and  if  you 
had  nothing  else  you  would 
soon  be  calling  out. 

Well  now,  would  you  be 
satisfied  if  you  could  get 
your  food,  not  for  five 
shillings,  but  for  less  than 
three  hours  of  work  ? 

Well,  it  is  possible. 

By  everyone  producing  more. 

Let  us  consider  the  employer 
abolished. 


BENEFICIARIES   OF  FREE  TRADE 

Well  ? 


Yes. 


Yes, 


That  seems  all  right. 


Well,  but  how  are  we  to  pro- 
duce more  ? 
No,  thank  you. 


What  is  it  ? 


That  sounds  true. 


Then  if  more  were  produced 
it  would  be  shared  by  the 
workers,  would  it  not  ? 

So  that  each  man  would  be 
entitled  to  a  bigger  share 
•  for  himself,  and  everyone 
would  be  better  off  ? 

Now  wages  are  given  you  so 
that  you  can  exchange  your 
share  for  the  variety  of 
things  that  you  want,  and 
therefore  for  your  larger 
share  you  would  get  a 
larger  share  from  the  other 
workers  by  means  of  your 
wages. 

So  that  your  wages  will  be 
worth  more,  and  with  the 
same  wage  you  will  be 
better  off  and  your  food 
will  cost  you  less. 

By  working  longer  hours. 

I  thought  you  would  say 
that,  but  there  is  a  much 
better  way. 

By  becoming  skilled,  because 
a  skilled  worker  produces  a 
greater  value  per  hour  than 
an  unskilled,  or  there  would 
be  no  virtue  in  skill. 

Therefore  if  more  and  more 
of  you  workers  get  into 
skilled  industries,  the  value 
of  your  production  will  go 
up  and  your  food  will  cost 
you  less,  not  more. 

297 


THE   REAL  WEALTH   OF  NATIONS 


But  how  are  the  skilled  in- 
dustries to  be  enlarged  ? 

But  does  not  Protection  in- 
crease prices  ? 


How  do  you  make  that  out  ? 


Then    what's    the    good    of 
Protection  ? 


Well,  why  haven't  we  become 

skilled  ? 
What  do  you  mean  ? 


How  do  you  make  that  out  ? 


By  protecting  them  from 
foreign  competition. 

Certainly  it  does  at  first  in 
money  until  there  is  an 
increase  in  production;  but 
even  if  this  did  not  result, 
it  would  only  mean  a  depre- 
ciation in  the  value  of 
money. 

Well,  if  everyone's  wages 
were  doubled  to-day,  all 
prices  would  be  doubled 
to-morrow,  and  with  the 
same  distribution  no  one 
would  be  better  or  worse 
off  than  before. 

Its  sole  advantage  lies  in  the 
fact  that  it  provides  the 
opportunity  for  increasing 
the  value  of  your  pro- 
duction, without  working 
harder  or  longer  hours, 
through  your  advancement 
in  skill. 

Because  of  Free  Trade. 

I  mean  that  under  Free  Trade 
it  is  impossible  for  a  nation 
to  develop  its  skilled  in- 
dustries. 

Oh,  that  is  another  story. 


298 


PART  V 

RECONSTRUCTION 

CHAPTER    XXV 

A  NEW   SYSTEM   OF   GOVERNMENT 

"  A  city,  then"  said  /,  "  as  I  imagine,  takes  its  rise  from 
this,  that  none  of  us  happens  to  be  self-sufficient,  but  is  indigent 
of  many  things  ;  or  do  you  imagine  there  is  any  other  origin 
of  building  a  city?"  "None  other,"  said  he. — PLATO'S 
"REPUBLIC." 

TO  ridicule  the  idealists  and  the  Utopians  is  justifiable, 
for  many  of  these   dreamers  assume  that  that  which 
is  is  not,    and   that    which  is  not  is,  with  the  result 
that   their   projects   cannot   possibly   materialize.     They   are, 
indeed,    deserving   of   harder   names,    for   the   quest   after   a 
condition  which  cannot  exist  or  a  state  of  man  inconsonant 
with  the  laws  of  Nature  is  no  more  worthy  of  respect  than 
a  quest  after  perpetual  motion  to-day  would  be. 

Any  scheme  for  the  betterment  of  this  world  which  does 
not  take  into  account  the  frailties  of  humanity  is  doomed 
to  failure.  All  men  can  never  be  equally  perfect,  however 
much  the  race  may  improve,  and  in  consequence  there  will 
always  be  defective  men  in  the  world,  and,  the  downward 
path  being  ever  easier  than  the  upward,  unless  their  number 
is  to  multiply  and  their  example  to  contaminate  the  rest, 
the  use  of  force,  moral  or  physical,  by  the  higher  on  the  lower 
natures  is  not  avoidable.  It  is  therefore  essential  to  decide 
by  whom  such  force  shall  be  wielded. 

In  every  community,  be  it  large  or  small,  there  will  always 
exist  divergent  desires  and  differences  of  opinion,  whence 
rulers  or  a  government  are  unavoidable.  It  is  clear  also 
that  the  nearer  humanity  approaches  to  perfection,  the  less 

299 


THE  REAL  WEALTH  OF  NATIONS 

important  is  the  form  of  government,  although  the  ideal 
head  would  be  a  perfect  man.  The  widely  held  opinion  that 
the  head  of  the  State  should  be  changed  periodically  suggests 
that  we  are  a  long  way  from  perfection,  for  a  community 
could  not  have  a  better  ruler  than  the  best,  and  to  remove  a 
man  from  fear  that  he  may  become  too  powerful  shows  that 
his  people  believe  that  he  is  unfitted  for  his  position. 

As  a  modern  government,  however,  does  not  consist  of 
only  one  man,  it  is  necessary  to  consider  who  should  con- 
stitute its  members,  for  although,  whatsoever  its  form,  its 
function  is  the  promotion  of  the  well-being  of  all,  we  have 
already  shown  incontrovertibly  that  its  power  to  perform 
its  duties  is  not  derived  from  the  whole  but  only  from  one 
section  of  the  community,  i.e.,  the  producers  of  wealth. 

The  inhabitants  of  every  civilized  country  are  divided 
broadly  into  two  classes,  the  producers  of  wealth  and  the 
handlers  of  wealth,  for,  all  being  consumers,  they  cannot  be 
termed  a  class,  and  dependents  must  ultimately  belong  to 
one  class  or  the  other.  Now  an  examination  of  the  moral 
characteristics  of  both  classes  would  assuredly  not  reveal 
that  the  producers  are  inferior  to  the  handlers,  and  as  for 
intellectual  attainments,  all  the  well-being  in  the  world  being 
due  to  brains  or  skill,  those  of  the  producers  are,  and  must 
be,  incomparably  the  greater.  Notwithstanding  this  most 
important  fact,  the  world  is  at  present  controlled  by  handlers 
of  wealth,  and  for  two  reasons.  The  first  is,  the  middlemen's 
wealth  gained  at  the  expense  of  the  producers,  which  has 
allowed  them  the  necessary  money  and  leisure  for  public 
affairs.  The  second,  which  we  have  dealt  with  more  fully 
elsewhere,  is  the  economic  ignorance  of  the  masses.  From 
the  beginning  of  the  world  all  man-wealth  has  been  due  to 
the  producer,  and  so  it  must  ever  be,  yet  so  far  he  himself 
has  failed  to  realize  this  truth  ;  consequently  he  has  made 
no  concerted  effort  to  assert  his  rights,  and  it  is  not  to  be 
wondered  at  that  others  have  not  recognized  them. 

To  illustrate  how  the  wealth-producers  have  in  fact  allowed 
themselves  to  be  exploited  by  the  wealth-handlers,  we  have 
analysed  the  official  records  of  the  wills  proved  in  Great 
300 


A  NEW  SYSTEM  OF  GOVERNMENT 

Britain  for  a  given  year.  We  restricted  our  investigations 
to  fortunes  exceeding  £50,000  in  amount,  choosing  1913  as  the 
last  complete  pre-War  year,  and  we  make  no  pretence  that 
the  declared  occupation  of  the  deceased  necessarily  indicates 
the  true  source  of  his  wealth. 

Under  middlemen,  A,  we  have  included  bankers,  merchants, 
shipowners,  lawyers,  stockbrokers,  auctioneers,  shopkeepers, 
and  those  whose  wealth  was  apparently  derived  from  handling 
of  the  nation's  irreplaceable  raw  material,  such  as  colliery 
proprietors,  iron-masters,  etc.  We  are,  of  course,  aware  that  a 
number  of  middlemen  are  also  directly  interested  in  production, 
but  the  records  do  not  permit  us  to  make  any  distinction. 

The  wealth-producers  have  been  divided  into  three 
categories — B,  engineers,  doctors,  architects,  farmers,  and 
manufacturers  (except  those  included  under  C  and  D)  ;  C, 
spinners  and  weavers  of  cotton  and  wool,  chocolate,  biscuit, 
and  tobacco  manufacturers,  and  sugar  refiners,  who  are  all 
largely  employers  of  unskilled  labour  ;  and  D,  brewers  and 
distillers.  We  have  differentiated  the  latter,  not  because 
it  is  a  matter  of  opinion  whether  or  not  they  add  to  the  well- 
being  of  the  community,  but  because  they  merely  transform 
existing  commodities,  as  barley,  hops,  oats,  potatoes,  rye, 
wine,  etc.,  into  another  form  of  wealth  which  cannot  be 
maintained  to  have  a  higher  intrinsic  value. 

We  had  hoped  to  show  separately  the  wealth  derived 
from  land,  even  if  we  could  not  distinguish  that  due  to  produc- 
tion from  that  due  to  rent,  or  the  sale  of  land.  Unfortunately, 
the  source  of  such  wealth  is  indicated  in  so  few  instances  that 
we  have  included  the  landowners  in  the  last  list,  E,  which 
comprises,  therefore,  in  addition  to  these,  all  those  whose  source 
of  wealth  is  not  defined,  such  as  women,  priests,  peers,  gentle- 
men, etc. 

The  totals  are  as  follows  : 

A          .....     £30,761,204 

B £12,520,408 

C £8,037,704 

D £5,190,231 

E £45,221,327 

301 


THE  REAL  WEALTH  OF  NATIONS 

and  the  average  amounts  of  the  estates  : 

AA £161,053 

BA £i2i,557 

CA £309,H2 

DA  .         ,         .         .         .         .  £305,307 

EA £ii9,950 

Bearing  in  mind  that  the  profit,  i.e.,  wealth,  of  the  middle- 
man represents  no  increase  in  national  wealth,  the  total  of 
A,  as  compared  with  that  of  B,  or  even  with  the  sum  of  B, 
C,  and  D,  is  illuminating,  while  the  low  average  BA,  as  com- 
pared with  AA,  CA,  and  DA,  and  the  fact  that  of  the  producers 
the  largest  amounts  were  left  by  employers  of  unskilled  labour, 
or  those  who,  according  to  the  British  Census  of  Production, 
paid  on  the  average  the  lowest  wages,  should  give  Labour 
furiously  to  think,  and  confirms  our  statement  that  up  to 
the  present  it  has  been  permitted  to  an  individual  to  amass 
wealth  regardless  of  the  interests  of  the  community. 

It  might  appear  at  first  sight  that  the  large  total  under 
E  must  weaken  our  conclusion,  but  we  would  suggest  that  on 
the  contrary  it  strengthens  it,  for  the  following  reasons.  First, 
if  a  man  be  a  producer,  his  source  of  wealth  is  usually  known, 
so  that,  apart  from  wealth  derived  from  land,  much  of  which  is 
not  due  to  production,  in  all  probability  the  greater  part  of  this 
total  would  have  to  be  added  to  that  of  A.  Secondly,  although 
the  wealth  of  those  with  no  occupation  may  have  been  derived 
from  industry,  it  is  more  than  probable  that  it  was  derived  from 
non-productive  occupations,  because  the  calling  of  the  middle- 
man having  been  allowed  to  become  so  profitable,  money  is 
naturally  attracted  to  it,  unless  the  investor  be  personally 
interested  in  production. 

The  wealth-handlers  employ  also  almost  entirely  unskilled 
labour,  which  has  no  claim  to  wealth,  and  so  it  is  obvious  that 
had  the  middleman's  profit  been  controlled,  and  the  wealth 
filched  from  the  producers  been  handed  back  to  them,  the 
latter — both  workers  and  employers — would  have  been  better 
off.  They  have  been  so  busy  fighting  one  another,  however, 
that  they  have  meekly  permitted  their  own  exploitation. 
302 


A  NEW  SYSTEM  OF  GOVERNMENT 

The  widespread  poverty  existing  is  not  due,  therefore,  to  pro- 
ducers keeping  an  unfair  share  of  the  wealth  which  they  create, 
but,  on  the  contrary,  to  their  being  despoiled  by  non-producers, 
combined,  of  course,  with  the  slow  altruistic  development  of  man, 
which  has  necessarily  influenced  distribution  in  the  community. 

In  the  earliest  stage  of  primitive  man  he  worked  separately 
to  keep  himself  and  his  dependents  alive,  but  as  tribes  or 
nations  were  formed  a  class  gradually  arose  which,  by  force 
or  guile,  stole  the  wealth  of  the  producer,  and,  finding  that 
they  could  do  it  successfully,  these  men  gave  up  any  attempt 
at  production  themselves.  There  was  little  question  in  those 
days  of  employer  and  employed,  but  merely  of  producer  and 
non-producer. 

Before  the  employer  appeared,  therefore,  the  producer 
of  wealth  was  robbed  by  rich  merchants,  bankers,  etc.  Then, 
at  a  later  date,  the  great  employers  of  labour  appeared 
upon  the  scene,  since  when  we  have  heard  the  cry  of  the 
manual  workers,  not  necessarily  producers  at  all,  that  they 
are  robbed  by  their  employers  of  the  wealth  they  produce. 
But  we  have  shown  that  in  many  cases  the  worker  produces 
no  wealth  ;  he  is  merely  the  medium,  like  the  lubricating  oil 
of  a  machine,  and  hence  there  is  nothing  of  which  to  rob  him. 
Undoubtedly  he  has  been  ill  requited,  but  the  cause  of  this 
was  not  necessarily  his  employer's  desire  to  deal  unfairly 
by  him  ;  it  was,  rather,  his  ignorance  of  his  economic  obliga- 
tions (see  Chapters  IX  and  XXII)  and  the  innate  selfishness 
of  man,  which  urges  him  to  get  as  much  as  he  can,  and  to  give 
in  return  as  little  as  he  can — in  short,  acceptance  of  the  law 
of  supply  and  demand. 

This,  surely,  corresponds  with  the  attitude  of  most  of 
the  manual  workers  to-day,  for  few  workmen  can  con- 
scientiously say  that  they  do  their  best  for  their  employer. 
The  explanation  of  their  blindness  to  their  true  interests  is 
found  in  the  belief  which  obsesses  them  that  they  work  for 
wages.  They  have  lost  sight  of  the  fact  that  their  labour 
(or  produce)  may  not  be  worth  that  which  they  purchase 
with  their  wages,  and  if  it  is  not,  that  they  themselves  are 
depreciating  the  value  of  the  money  paid  to  them. 

303 


THE  REAL  WEALTH  OF  NATIONS 

While  the  handler  of  wealth  is  necessary,  and  he  must 
be  allowed  to  live  and  his  efficiency  must  be  encouraged,  his 
profits  and  wealth  should  be  restricted,  and,  if  necessary,  be 
subjected  to  differential  taxation,  so  that  his  occupation 
would  become  unpopular,  for  it  must  be  recognized  that  his 
gains  do  not  increase  the  total  wealth  of  the  world,  and  his 
profit  is  the  producer's  loss.  Further,  any  increase  in  the 
number  of  middlemen  beyond  that  absolutely  essential  for 
the  well-being  of  the  community  should  not  be  tolerated, 
and  the  profession  of  money-making  being  circumscribed  and 
less  attractive,  the  most  capable  and  ambitious  would  devote 
their  energies  to  the  production  of  wealth,  from  which  alone 
not  only  they  but  the  whole  of  their  fellows  can  benefit. 

The  cities,  however,  the  seats  of  government,  are  trading 
centres.  It  is  here  that  the  laws  are  made  and  that  the  wealth 
of  the  nation  obtrudes,  although  it  was  created  elsewhere. 
In  these  surroundings  the  producers  have  naturally  remained 
unrecognized  and  unhonoured. 

If  the  middleman  is  controlled  as  we  have  suggested,  his 
power  to  influence  will  disappear,  and  the  wealth-producer  having1 
now  a  lesser  struggle  and  consequently  leisure  to  devote  himself 
to  affairs  of  State,  will  train  himself  for  public  work  and  come 
forward  as  representative  of  the  community's  true  interests. 

And  what  a  change  would  follow  !  The  gift  of  the  gab 
would  no  longer  be  a  passport  into  politics,  and  although 
men  of  brilliant  intellectual  attainments  would  not  be  debarred 
from  government,  the  eyes  of  the  people  generally  would  be 
opened,  and  no  longer  would  they  suffer  the  bad  old  disputa- 
tions on  matters  of  opinion  or  prejudice,  or  submit  with 
patience  to  government  by  expediency  and  compromise,  which 
have  no  place  in  science  or  in  Nature. 

An  expert  would  no  longer  be  dubbed  an  ill-balanced 
enthusiast,  nor  his  heart  be  broken  and  the  truth  overwhelmed 
by  a  mass  of  persiflage,  nor  would  men  of  real  knowledge  and 
scientific  attainment  any  more  declare  that  Economics,  or 
the  science  of  government,  is  unworthy  of  their  attention. 
The  acid  test  would  be,  not  "  What  have  you  said  ?  "  but 
"  What  have  you  made  ?  " 
304 


A  NEW  SYSTEM  OF  GOVERNMENT 

Here  are  the  new  representatives  of  the  people  :  scholars, 
scientists,  engineers,  architects,  accountants,  artists,  writers, 
doctors,  farmers,  manufacturers,  together  with  the  labour 
representatives  of  all  skilled  trades.  We  have  not  forgotten 
lawyers  ;  their  real  function  is  the  clarifying,  not  the  framing, 
of  a  nation's  laws,  and  these  services  are  needed  by  the  State. 
In  short,  any  man  or  woman  who  has  enriched  the  world  by  >• 
hand  or  brain  would  be  welcome. 

The  heads  of  Government  departments,  both  temporary 
and  permanent,  would  be  selected  for  their  expert  know- 
ledge gained  in  actual  experience,  and  the  practice  of  playing 
'  general  post '  for  positions  of  national  responsibility  would 
no  longer  be  tolerated. 

Having  decided  upon  our  producer-rulers,  we  will  now 
consider  the  question  of  the  distribution  of  wealth. 

Again  referring  to  primitive  conditions,  it  is  obvious  that 
a  man  who  lived  by  himself  and  produced  a  surplus  beyond 
his  necessaries  could  retain  this  for  himself,  for  there  was 
no  one  to  say  him  nay,  or  to  take  it  from  him.  But  when 
he  had  a  family  he  participated  with  them  ;  they  did  not 
force  him  to  provide  for  them,  he  did  so  by  instinct.  To-day 
we  have  got  farther  than  that,  and  although  no  scheme  has 
been  suggested  for  the  distribution  of  wealth  between  father, 
mother,  and  children,  all  civilized  people  compel  the  parent 
to  provide  for  his  family. 

Similarly,  civilization  recognizes  the  claims  of  the  poor 
upon  the  rich,  the  unfortunate  upon  the  fortunate,  the  weak 
upon  the  strong,  and  repudiates  the  animal  law  of  the  survival 
of  the  fittest.  Were  it  otherwise,  since  wealth-production 
is  due  to  brains  or  skill  no  one  could  deny  that  economically 
a  man  who  by  his  individual  efforts,  and  not  at  the  expense 
of  others,  created  wealth  was  entitled  to  retain  the  whole  of 
it  for  himself.  Indeed,  the  manual  workers  to-day,  although 
they  resent  being  robbed,  as  they  wrongly  call  it,  by  their 
employers,  adopt  a  very  similar  attitude,  and  want  all  they 
make  for  themselves,  without  troubling  to  inquire  how  much 
of  the  things  produced  is  due  to  their  own  efforts  and  how 
much  to  those  of  others. 

305 


THE  REAL  WEALTH  OF  NATIONS 

Nevertheless,  as  Economics  is  an  ethical  science  it  does 
not  admit  the  right  of  a  man  to  wax  wealthy  even  through 
his  individual  unaided  efforts,  if  he  be  surrounded  by  people 
starving  or  in  poverty,  and  here  we  come  to  the  moral  side 
of  Economics,  which  may  be  stated  as  follows  : 

No  man  in  a  civilized  community  is  entitled  to  retain  for 
himself  the  whole  product  of  his  labour,  but  progress  is  impos- 
sible if  he  be  not  allowed  to  retain  for  himself  such  a  share 
of  this  as  will  induce  him  to  do  his  best.  Between  the  two 
extremes  of  all  or  nothing  lies  the  whole  question  of  wealth- 
distribution,  and  while  the  production  and  exchange  of  wealth 
are  controlled  by  definite  laws,  its  distribution  is,  and  always 
must  be,  a  matter  of  opinion,  or  of  altruistic  education. 

Failure  to  recognize  the  true  wealth-producers  and  that 
all  men  are  not  capable  of  produci  ng  wealth,  and  consequently 
are  not  all  entitled  to  an  equal  share,  is  mainly  responsible 
for  the  present  unrest  throughout  the  world.  The  problem 
is  not  to  be  solved  by  force,  and  in  particular  it  is  an  absurd 
idea  that  the  unskilled  manual  workers,  who  are  of  them- 
selves incapable  of  producing  wealth,  and  may  not  be  con- 
strained to  work,  should  be  permitted  to  force  others  to  produce 
wealth  and  to  dictate  how  it  should  be  distributed. 

On  the  other  hand,  the  true  wealth- producers,  being 
honoured  by  the  community,  and  no  longer  fearing  that  they 
will  be  forcibly  despoiled,  will  voluntarily  agree  to  share 
their  wealth  to  an  ever  larger  extent  with  their  less  fortunate 
brothers.  It  is  through  education  alone  that  men  will  lose 
the  desire  to  become  millionaires,  and  although  there  is  no 
economic  reason  why  they  should  not  strive  to  amass  a  fortune, 
provided  this  represent  but  a  portion  of  the  national  wealth- 
increase  due  to  their  labour,  in  a  properly  governed  State  the 
existence  of  a  millionaire  non-producer,  be  he  a  handler  of 
wealth  or  of  money,  would  not  be  tolerated. 

So  long,  however,  as  the  community  honours  those  who 
amass  wealth  regardless  of  its  source,  i.e.,  whether  it  be  an 
equitable  share  of  increased  production  or  is  filched  from  others 
who  produce  it ;  and  so  long  as  no  inquiry  is  made  as  to  the 
use  to  which  it  is  put,  i.e.,  whether  it  is  used  for  further  pro- 
306 


A  NEW  SYSTEM  OF  GOVERNMENT 

duction  or  not,  little  progress  is  likely  to  be  made  toward  a 
higher  civilization.  Only  when  it  is  regarded  as  a  distinction 
to  increase  the  production  of  wealth  and  widen  its  distribution 
will  the  world  be  a  different  place,  and  its  control  be  in  different 
hands. 

"  He  who  pays  the  piper  should  call  the  tune,"  runs  a 
popular  adage,  whence  the  true  creators  of  wealth  have  the 
right  to  decide  its  distribution,  and  not,  as  at  present,  those 
who  merely  handle  it  in  money  or  in  kind. 

And  is  it  to  be  believed  that  these  wealth-producers,  who, 
as  we  have  shown,  cannot  keep  to  themselves  permanently 
the  entire  fruits  of  their  labour,  will  have  a  lesser  appreciation 
of  social  equity,  or  of  the  nation's  true  interests,  than  those 
who  merely  enrich  themselves  at  the  expense  of  others  ?  It 
has  ever  been  advocated  by  serious  educationists  that 
responsibility  and  power  must  go  hand  in  hand.  To  set  a 
thief  to  catch  a  thief  has  considerable  justification,  but  only 
in  politics  has  the  idea  been  extended  to  setting  wealth- 
stealers  in  authority  over  wealth-producers  ! 

Thus  a  lower  morality  need  not  be  anticipated  from  our 
new  rulers,  the  men  of  brains  and  skill,  who  enrich  the  com- 
munity, than  from  such  as  amass  wealth  at  the  expense  of 
their  fellows,  although  it  is  in  truth  easy  to  be  generous  with 
the  property  of  others. 

It  is  illustrative  of  the  truth  of  our  contention  that  the 
highest  wages,  the  usual  means  of  wealth-distribution,  are 
already  found  in  productive  industries. 

Lest  the  reader  should  point  to  the  admitted  ill-treatment 
of  the  manual  workers  in  the  past,  we  would  remind  him  that, 
as  stated  on  page  303,  this  was  due  to  ignorance  of  the  true 
source  of  wealth,  and  to  non-recognition  of  man's  obligations 
to  his  fellows.  Further,  not  only  was  the  latter  failing  common 
to  all  men,  whether  workers  or  employers  (and  we  showed  in 
Chapter  XI  how  the  interests  of  an  employer  and  his  workers 
were  identical,  although  not  those  of  all  employers  and  all 
employees),  but  the  '  employer-producers '  were  themselves 
robbed  of  their  reward  by  the  middlemen. 

It  is  obvious  that  the  application  of  our  principles  must 

SO? 


THE  REAL  WEALTH  OF  NATIONS 

clash  with  many  vested  interests,  and  although  we  cannot 
consider  these  where  their  continuance  is  opposed  to  the 
well-being  of  the  community,  it  would  be  manifestly  unfair 
to  destroy  them  suddenly,  bearing  in  mind  that  they  originated 
in  general  acceptance  of  false  economic  principles.  Neverthe- 
less, ultimately  all  power  must  fall  into  the  hands  of  those 
to  whom  wealth  is  due,  viz.,  the  skilled  producers  by  hand 
and  head. 

The  Government  being  now  constituted,  we  must  decide 
what  the  nation  should  produce,  and  then  how  it  must  set 
about  it.  An  Industrial  Council  will  regulate  exports  and 
imports,  and,  realizing  the  importance  of  skilled  or  high  value- 
producing  industries  to  the  national  well-being,  it  will  have 
no  option  but  to  adopt  the  principle  of  Free  Production  and 
protect  them  from  any  and  all  competition  by  workers  of  other 
lands  ;  in  fact,  the  moment  it  is  recognized  that  there  is  such 
a  thing  as  quality  in  industry,  the  measures  to  be  taken  are 
self-evident. 

The  nation  will  decide  to  produce  that  which  on  the  average 
represents  the  highest  value  for  the  time  taken  in  producing 
it,  and,  consequently,  it  will  seek  to  develop  the  education 
of  its  members  so  that  the  maximum  number  may  be 
absorbed  by  its  most  skilled  industries,  and  as  the  adoption 
of  this  principle  will  become  general,  every  nation's  unskilled 
industries  will  now  be  limited  to  those  which  it  cannot  induce 
nations  of  a  lower  culture  to  undertake. 

Further,  all  irreplaceable  raw  material  will  be  regarded 
as  the  property  of  the  nation,  and  the  wealth  arising  from  its 
utilization  will  be  devoted  largely  to  the  benefit  of  the  whole 
community.  Thus,  the  wages  of  the  miners  must  be  regulated 
by  the  law  of  value,  and  although  there  is  something  to  be  said 
for  a  tax  on  coal  as  a  means  of  raising  revenue,  owing  to  the 
fact  that  the  amount  of  coal  used  by  the  members  of  the 
community  is  so  diverse,  if  those  who  consume  it  industrially 
share  their  resulting  wealth  equitably  it  is  quite  unnecessary, 
and,  moreover,  a  difference  could  be  made  in  the  price  of  coal 
for  domestic  and  industrial  use.  Those  who  control  the  mines 
will  be  allowed  a  small  profit  for  their  responsibility,  and 
308 


A  NEW  SYSTEM  OF  GOVERNMENT 

the  price  of  coal  can  then  be  regulated  by  the  total  cost 
of  getting  and  handling  it.  This  price  would  be  reasonable, 
whereas,  so  long  as  bureaucracy  is  inefficient,  nationalization, 
although  theoretically  sound,  will  be  wasteful  and  must  result 
in  an  increase  in  cost  and  therefore  in  price. 

Profit  to  individuals  on  the  mining  of  coal  for  home  con- 
sumption is  bad  enough,  but  having  at  long  length  realized 
its  national  value,  it  is  clear  that  such  profit  ought  not  to  be 
allowable  on  mining  for  export,  which,  as  we  have  already 
indicated,  should  in  any  case  be  permitted  for  special  reasons 
only,  when  the  entire  profit  should  be  taken  by  the  State. 

The  same  arguments  apply  to  the  exploitation  of  the 
nation's  irreplaceable,  and  not  inexhaustible,  raw  material,  in 
a  partly  manufactured  condition,  e.g.,  pig  iron.  The  national 
wealth-increment  would  be  enlarged  through  a  reduction  in 
its  export  and  the  consequent  liberation  of  labour  for  more 
profitable  production. 

Having  decided  what  to  produce,  we  will  now  consider 
how  the  maximum  production  is  to  be  obtained. 

The  same  Industrial  Council  which  will  analyse  the 
quality  of  industries  and  regulate  exports  and  imports  will 
decide  the  hours  and  wages  in  every  occupation,  in  accordance 
with  the  law  of  value. 

This  Council  will  be  comprised  of  employers  and  workers, 
but  it  will  appoint  a  committee  of  the  latter,  with  perhaps  an 
expert  employer  as  an  impartial  chairman,  as  a  Wages  Board 
to  decide  the  minimum  wages  to  be  paid  to  every  class  of 
worker  from  A,  the  most  unskilled — the  crossing-sweeper, 
the  railway  porter,  the  labourer,  etc. — to  Z,  the  highly-trained 
craftsman,  draughtsman,  mechanic,  engineer — in  short,  those 
essential  men  who  act  as  mainsprings  in  the  best  industries 
of  every  nation.  This  Wages  Board  will  decide  on  and  fix 
the  living  wage  for  man,  woman,  and  dependents,  the  dirty 
money  to  be  paid  to  labour  working  under  unpleasant  con- 
ditions, as  well  as  the  wealth-wage — which  latter  will  become 
higher  as  the  total  value  of  national  production  increases — 
and  although  the  men  concerned  will  always  be  heard  and  all 
trades  will  be  represented,  the  executive  will  be  chosen  from 

309 


THE  REAL  WEALTH  OF  NATIONS 

the  higher  classes  of  labour,  who  should  have  not  only  better 
judgment,  but,  being  little  concerned  in  questions  relating  to 
the  living  wage  and  dirty  money,  will  be  more  impartial. 

When  the  skilled  workers  get  together,  they  will  doubtless 
realize  that,  despite  their  numerical  inferiority,  they  hold, 
through  their  skill,  the  sceptre  of  power,  and  will  no  longer 
allow  the  nation  to  be  terrorized  by  its  miners,  its  transport 
workers,  or  indeed  any  unskilled  workers,  who,  producing 
least,  if  any,  wealth,  cannot  justly  demand,  although  they 
may  hope  for,  an  increasing  share. 

In  Chapter  X  we  discussed  the  principles  which  should 
govern  the  distribution  of  wealth  by  wages,  and  in  Chapter  XII 
we  showed  how  the  adoption  of  these  principles,  together  with 
the  substitution  of  co-operation  for  competition,  would  remove 
the  cause  of  strikes. 

Consequently  strikes  of  any  kind  will  no  longer  be  tolerated, 
for  wages  being  regulated  according  to  value,  there  will  not 
merely  be  no  ground  for  them,  but  the  other  workers  will 
realize  that  a  strike,  even  in  a  good  cause,  is  civil  war,  and 
that  as  man  lives  on  the  product  of  labour,  not  on  money, 
production  must  not  cease  for  an  unnecessary  moment.  Recog- 
nition that  strikes  harm  the  community  will  result  in  the 
necessaries  of  life  being  withheld  from  the  strikers,  who  will 
not  be  permitted  to  enjoy  a  holiday  while  others  toil  for 
them. 

In  the  past  strikes  have  been  directed  against  employers 
and  the  Government,  but  when  the  workers  themselves  decide 
scales  of  wages  and  conditions  of  employment,  the  former  can  no 
longer  be  held  responsible  for  unsatisfactory  conditions,  while 
as  in  a  democratic  state  the  Government  consists  of  the  elected 
representatives  of  the  people,  the  remedy  for  any  faults  lies 
obviously  in  choosing  better  rulers.  The  referendum  is  a 
proper  method  of  ascertaining  public  opinion,  and  its  un- 
popularity is  apparently  due  to  the  opposition  of  politicians, 
who  anticipate  that  the  adoption  of  it  would  decrease  their 
power  and  influence. 

Obviously  the  trade  unions  must  abolish  their  restrictions 
on  output,  the  fruit  of  two  economic  delusions.  The  first 
310 


A  NEW  SYSTEM  OF  GOVERNMENT 

is  that  by  restricting  output  unemployment  is  reduced.  Now, 
it  is  true  that  any  section  of  labour  which  restricts  its  pro- 
duction may  avoid  unemployment  in  its  trade,  but  success 
can  only  be  purchased  at  the  expense  of  other  workers,  for 
whom  less  goods  will  be  available.  Indeed,  if  all  the  workers 
restricted  their  output,  the  whole  community  would  ulti- 
mately starve.  The  truth  is,  as  we  have  already  shown,  that 
over-production  is  impossible  ;  it  is  only  wrong  production, 
or  the  over-production  of  certain  commodities — generally  the 
products  of  unskilled  labour,  or  articles  of  fashion — which 
causes  unemployment. 

Again  we  see  the  weakness  of  thinking  in  terms  of  money. 
Labour  imagines  the  object  of  work  to  be  wages,  instead  of 
the  production  of  goods,  whence  it  might  logically  follow 
that  there  is  a  virtue  in  employment,  or  in  working  long 
hours,  apart  from  production  ! 

The  second  delusion  is  that  the  workers  are  benefited  by 
compelling  their  employers  to  pay  all  a  standard  wage,  regard- 
less of  the  value  of  the  varying  product.  The  result  is  that 
the  more  efficient  restrict  their  output  to  avoid  setting  an 
uncomfortable  pace  to  their  fellows,  and  this,  of  course,  means 
reduced  production,  with  a  depreciation  in  the  purchasing 
power  of  the  wages  paid  to  both  efficient  and  inefficient. 
The  former,  while  believing  that  they  injure  only  their 
employers,  thus  actually  harm  themselves  and  the  rest  of 
the  community. 

Nevertheless,  one  can  hardly  blame  the  trade  unions  and 
the  workers,  because  all  have  been  taught  to  believe  in  the 
law  of  supply  and  demand,  according  to  which  a  reduction 
in  the  supply  of  goods  increases  their  value.  The  general 
acceptance  of  this  perversion  of  the  truth  has  induced  the 
bulk  of  the  workers  to  do  less  than  their  best,  and  this  has 
resulted  in  a  widespread  demoralization  to-day. 

Every  country  is  suffering,  more  or  less,  from  the  same 
disease,  although  all  have  not,  like  Britain,  neglected  their 
skilled  industries,  so  that  each  could  anticipate  a  considerable 
improvement  in  its  economic  condition  if  it  adopted  the 
principles  here  advocated. 


\\ 


THE  REAL  WEALTH   OF  NATIONS 

Having  a  monopoly  in  the  home  market  for  the  best 
industries,  the  workers  will  be  assured  of  the  high  wages 
which  correspond  to  their  skill,  and  as  the  nation  has  a 
monopoly  in  the  sale  of  their  products,  a  national  profit  is 
a  matter  of  course. 

Now  equitable  profit-sharing  is  only  practicable  if  there 
be  no  danger  of  a  serious  loss,  over  a  period  of  years,  and 
consequently  it  has,  in  general,  only  proved  successful  in  the 
case  of  monopolies  or  in  trades  yielding  on  the  average  a 
fair  return.  However,  as  we  propose  to  hold  sacrosanct  our 
skilled  industries,  from  which  the  production  of  wealth  is 
mainly  derived,  these  in  effect  constitute  a  national  monopoly. 

Obviously  profit-sharing  will  be  introduced  first  into 
the  most  skilled  industries,  because,  producing  as  these  do 
the  greatest  amount  of  wealth  per  worker,  a  given  per- 
centage increase  in  their  output  will  yield  the  largest  total 
for  distribution. 

The  value  of  an  industry  will  be  regarded  as  proportionate 
to  the  average  wages  paid  by  it,  payment  according  to  skill 
being  assumed,  and  neither  a  man  nor  a  set  of  men  will  be 
permitted  to  amass  riches  in  wealth-destroying  industries, 
i.e.,  those  employing  the  most  unskilled  labour. 

The  profit  allowed  to  the  employer  per  man  employed, 
regulable  by  taxation,  should  depend  on  the  average  wealth- 
wage  paid  by  him.  Hence  a  community  of  interest  between 
masters  and  men  will  be  assured. 

The  vexed  question  of  the  workers'  share  in  the  control 
of  industry  now  finds  a  solution,  for  antagonism  between 
labour  and  capital,  or  employers,  being  dead,  all  will  strive 
together  for  the  maximum  output,  recognizing  that  the 
interests  of  employer  and  employees  are  identical.  Thus, 
whereas  at  present  the  economic  body  is  diseased,  in  that  its 
legs  (labour)  and  its  arms  (capital)  refuse  to  obey  its  head 
(brains  and  skill),  it  will  enjoy  health  when  sanity  is  restored. 

In  our  New  Civilization  improvements  in  education  will 
bear  fruit,  for  the  best  industries  will  be  capable  of  absorbing 
an  unlimited  amount  of  brains  and  skill  and  the  limit  to  a 
country's  advancement  in  real  culture  will  be  set  only  by 
312 


A  NEW  SYSTEM   OF    GOVERNMENT 

the  abilities  of  its  inhabitants.  The  higher  the  quality  of 
the  industries,  the  greater  will  be  the  advantage  accruing 
through  foreign  trade,  for  a  nation's  superiority  will  manifest 
itself  in  the  import  of  the  products  of  unskilled  labour  in 
exchange  for  those  of  its  skilled  industries. 

The  re-housing  of  the  poor  will. now  be  practicable.  Money 
will  not  do  this,  nor  will  it  improve  and  provide  for  a  longer 
education  or  yield  the  full  necessaries  for  every  inhabitant, 
as  well  as  a  greater  share  of  luxuries  for  all.  Only  an  increase 
in  the  value  of  production  through  the  development  of  skilled 
industries,  combined  with  a  reduction  to  the  absolute  minimum 
in  the  number  of  non-producers,  can  secure  them. 

Production  of  sufficient  necessaries  for  all  in  a  shorter 
time,  and  increased  efficiency  in  the  production  of  luxuries, 
will  alone  set  labour  free  for  rebuilding  and  provide  it  mean- 
time with  its  share  of  necessaries  and  luxuries,  will  alone 
ensure  a  greater  share  also  for  teachers,  without  detriment 
to  the  rest  of  the  community  (obtainable  through  higher 
salaries),  and  will  alone  permit  of  an  extension  of  the  period 
of  education. 

Those  who  believe  that  in  nationalization  lies  the  remedy 
for  discontent  should  remember  the  characteristics  of  those 
who  would  be  in  control.  They  must  not  make  the  mistake 
of  comparing  the  imperfect  employers  whom  they  know  with 
ideal  persons  in  unnatural  conditions,  and  must  bear  in  mind 
that  the  nation  could  only  be  advantaged  if  nationalization 
led  to  a  higher  efficiency.  The  institution  of  another  privi- 
leged class  would  not  justify  a  change  for  the  worse  (see 
Chapter  XII). 

To  advocate  that  the  land  should  be  equally  divided  among 
the  population  is  as  absurd  as  to  hold  that  wealth  should  be 
equally  distributed,  or  to  believe  that  men  are  equal,  for 
were  each  man  given  a  piece  of  land,  all  would  not  make  the 
same  use  of  it,  nor  could  they  even  work  it  profitably,  owing 
to  the  fact  that  subdivision  of  labour  is  essential  for  efficient 
production. 

It  is,  of  course,  obvious  that  economically  land,  like  irre- 
placeable raw  material,  cannot  be  the  absolute  property 

313 


THE  REAL  WEALTH  OF  NATIONS 

of  any  man,  and  should  be  held  only  in  trust.  So  long  as  a 
man  makes  the  best  use  of  his  holding,  however,  he  must 
be  given  security  of  tenure.  That  individuals  are  allowed 
to  possess  land  regardless  of  any  duties  to  the  community 
arising  out  of  their  tenure  is  a  survival  of  the  law  of  force,  and 
its  continuance  is  due  to  the  acceptance  of  false  economic 
principles.  Nevertheless,  the  vested  interests  created  can  only 
be  abolished  equitably  by  degrees. 

As  an  equal  share  of  the  land  cannot  be  held  by  all,  the 
question  of  rent,  or  a  share  of  the  resulting  wealth-increment, 
must  arise,  and  this  should  ultimately  be  paid  to  the  State, 
and  not  to  individuals.  On  the  other  hand,  a  man  who  builds 
a  house  on  a  piece  of  land  has  a  perfect  right  to  demand  rent 
for  it,  as  obviously  everyone  cannot  build  houses,  but  the 
amount  of  rent  he  receives  should  depend  upon  the  house, 
and  not  on  its  position,  for  the  additional  rent  exacted  in 
towns  or  in  fashionable  localities  in  reality  belongs  to  the 
community,  who  create  this  higher  demand  value. 

Far  more  unjustifiable,  however,  than  the  possession  of 
land  or  the  payment  of  rent  to  individuals  is  the  making  of 
profit  from  undeveloped  land,  i.e.,  by  buying  and  selling 
sites,  etc.  That  this  is  allowed  is  but  another  illustration  of 
that  economic  licence  permitted  to  middlemen. 

Thus  the  condition  of  land-tenure  should  be  the  maximum 
output  at  the  minimum  cost,  combined  with  its  maintenance 
in  good  condition,  and  with  an  equitable  distribution  of  wealth 
as  advocated  here,  it  would  not  matter  if  the  farming  of  the 
whole  country  were  controlled  by  one  man  ! 

There  is,  however,  one  direction  in  which  governmental 
development  is  essential,  because  of  the  delay  in  any  return 
on  capital ;  that  is,  in  reafforestation.  While  other  countries 
have  been  active  with  reafforestation,  Britain  has  stood  still, 
presumably  because,  as  was  replied  to  the  author  many  years 
ago,  "  It  is  not  practical  politics  " — which  affords  still  another 
illustration  of  the  influence  of  politics,  or  vote-catching,  upon 
Economics. 

In  the  land  ruled  by  the  principles  we  have  set  forth  there 
will  be  no  permanent  army  of  unemployed,  and  casual  labour, 

3»4 


A  NEW  SYSTEM  OF  GOVERNMENT 

always  unskilled,  will  be  considerably  diminished  by  the 
reduction  of  exports  and  imports,  and  other  unnecessary 
competition.  As  for  the  'work-shy,'  a  real  democracy  would 
not  tolerate  his  existence.  The  idea  of  a  man  slacking,  or 
refusing  to  do  honest  work,  and  being  free  to  live  by  begging, 
is  opposed  to  the  very  principles  .of  civilization,  which  denies 
an  individual  the  right  to  do  what  he  likes  if  it  be  detrimental 
to  his  fellows,  and  the  wealth-producers  will  not  permit  the 
average  conditions  of  living  of  the  community  to  be  lowered 
for  the  benefit  of  wastrels.  Bees  kill  the  drones,  and  man 
may  well  emulate  their  example,  even  if  only  by  making 
life  insufferable  for  their  human  imitators.  Obviously 
better  education  and  conditions  of  living  will  diminish  the 
number  of  such  pests,  but  there  will  always  be  those  who  will 
not  work  unless  forced  to  do  so,  and  any  pandering  to  them 
is  subversive  to  human  progress. 

Improvements  in  the  conditions  of  living  realizable  through 
increased  production  can  be  further  intensified  by  decreased 
consumption.  It  is  true  that  one  cannot  enjoy  commodities 
unless  one  consumes  them,  but  there  is  an  efficiency  in  con- 
sumption just  as  in  production.  So  long  as  men  and  women 
need  the  things  they  eat  or  drink  or  wear  they  undoubtedly 
benefit  in  making  use  of  them,  but  the  moment  they  begin 
to  waste  profit  ceases ;  indeed,  a  further  consumption  may 
actually  be  to  their  detriment.  Waste  certainly  injures 
others  and  the  whole  nation  by  necessitating  the  expenditure  >JL* 
of  additional  labour  to  reproduce  the  goods  consumed,  and 
the  toleration  of  such  waste,  again,  is  due  to  ignorance  of  the 
principles  of  life  and  Economics,  and  the  habit,  to  which 
we  have  so  often  referred,  of  thinking  in  terms  of  money, 

We  are  here  advocating  an  economy  in  goods,  not  in  money, 
and  the  two  are  entirely  distinct,  for  a  waste  of  money  affects 
only  the  individual,  whereas  waste  of  goods  reacts  upon  the 
whole  community.  Real  extravagance  does  not  mean  spending 
a  lot  of  money,  but  waste,  and  the  man  who  dines  moderately 
off  expensive  luxuries  is  a  truer  economist  than  one  who  eats 
more  necessaries  than  he  really  needs. 

In  our  worship  of  liberty  of  the  individual  and  ignorance 

315 


THE  REAL  WEALTH  OF  NATIONS 

of  Economics,  we  have  overlooked  the  fact  that  drunkenness 
and  gluttony  are  not  only  harmful  to  the  individual,  but  a 
crime  against  the  State,  and  children  should  be  taught  that 
only  animals  eat  as  much  as  they  can. 

This  lack  of  economic  knowledge  has  its  most  serious 
effect  upon  women  ;  they  are  the  housekeepers  of  the  world, 
and  economy  in  food  and  avoidance  of  waste  are  commonly 
considered  mean  by  them,  and  fiercely  resented  by  domestics. 
Nevertheless  one  cannot  blame  them  for  their  present 
ignorance,  for  they  have  not  been  taught  to  see  the  toiling 
producer  in  the  articles  that  they  buy. 

In  fear  and  trembling  we  add  one  more  indictment  to  the 
charge  against  misguided  woman,  on  whose  realization  of 
the  truth  the  future  largely  depends.  The  kaleidoscopic 
changes  of  fashions  in  female  attire  result  in  an  appalling 
loss  of  material  and  waste  of  labour.  Were  the  discarded 
garments,  etc.,  handed  on  to  the  needy,  the  waste  would  not 
be  serious.  Not  merely  is  this  only  done  to  a  relatively 
small  extent,  however,  but  many  articles  of  fashion  have 
next  to  no  practical  utility,  and  are  worn  for  a  few  hours 
only,  although  they  may  represent  the  toil  of  many  days. 
Yet,  after  all,  women  are  victims  of  the  fable  that  they  do 
good  by  providing  employment,  and,  when  they  realize  the 
resulting  waste  in  lives  and  labour,  they  themselves  will 
decree  a  less  frequent  change  of  fashion,  and  bar  much  flimsy 
rubbish. 

The  control  of  the  profits  of  middlemen,  whereby  they 
could  no  longer  amass  fortunes  at  the  expense  of  the  producers, 
would  result  in  all  men  preferring  to  be  producers,  and  in 
the  abolition  of  numerous  unessential  middlemen.  The  sub- 
stitution of  co-operation  for  competition  would  still  further 
increase  the  number  of  producers  and  the  nation's  wealth- 
production,  which  latter  would  be  greatly  stimulated  by  the 
prevalence  of  industrial  peace  and,  as  shown  in  Chapter  X, 
by  the  transfer  of  labour  from  less-  to  more-skilled  industries, 
in  which  every  suitable  man  would  now  find  employment. 

An  increased  production  of  wealth  and  a  reduction  in 
waste  of  labour  and  commodities  are  of  the  first  importance, 

316 


A  NEW  SYSTEM   OF   GOVERNMENT 

not  merely  in  the  future,  but  now.  An  army  of  men  mutilated 
in  the  War  must  be  supported  for  a  generation  at  least,  not 
to  speak  of  the  loss  of  providers  for  women  left  helpless  with 
fatherless  children,  and  notwithstanding  all  that  may  be  done 
to  provide  work  for  partially  incapacitated  men,  and  generous 
pensions,  a  larger  supply  of  commodities  from  each  producer 
can  alone  increase  the  purchasing  power  of  money  and  pre- 
vent the  continued  growth  of  poverty  and  its  concomitant 
discontent. 

We  have  considered  the  production  and  distribution  of 
wealth  under  our  new  system  of  government,  and  it  will 
also  be  realized  that  the  economic  principles  involved  in  its 
exchange  cannot  be  left  to  the  tender  mercies  of  chance  or 
force. 

Intrinsic  value  is  the  first  essential  consideration  in  an 
exchange  of  necessaries,  and  variation  in  the  real  cost  of 
production,  i.e.,  the  labour-hours  expended  upon  the  respective 
articles,  the  second.  As  a  consequence,  the  prices  of  all  neces- 
saries of  life  will  be  permanently  controlled  upon  these  bases, 
such  a  guaranteed  profit  being  allowed  to  the  producer  as 
will  encourage  him  to  increase  his  output  and  efficiency,  and 
to  maintain  the  wages  of  his  workers  at  a  proper  standard. 

The  least  fortunate  members  of  every  community  are 
most  vitally  affected  by  the  price  of  necessaries,  and  their 
interests  must  be  safeguarded,  although,  as  we  have  seen, 
cheap  prices,  if  obtained  'at  the  expense  of  national  output, 
must  eventually  react  unfavourably  upon  the  whole  popula- 
tion. In  the  event  of  a  deficient  home  production  and  con- 
sequent importation  of  necessaries,  the  price  of  those 
imported  must  be  equally  controlled,  and  any  difference 
dealt  with  as  indicated  in  Chapter  XX.  Alternatively,  our 
Government  would  be  justified  in  itself  importing  the  neces- 
saries of  life  for  its  people,  the  provision  of  these  being  the  first 
care  of  a  nation's  rulers. 

As  regards  foreign  trade,  while  controlling  the  quality  of 
exports,  i.e.,  forbidding  that  of  the  products  of  unskilled 
labour,  or  irreplaceable  raw  material,  every  Government 
must  see  that  the  rate  of  exchange  corresponds  to  the 

317 


THE  REAL  WEALTH  OF  NATIONS 

real  value  of  money,  and  is  not  left  to  the  tender  mercies  of 
the  money-handlers. 

In  our  new  system  of  government,  therefore,  the  produc- 
tion, exchange,  and  distribution  of  wealth  will  be  controlled 
by  its  producers,  and  it  being  possible  to  recognize  the  value 
of  each  individual  to  the  community,  his  reward  will  be 
decided  in  accordance  with  his  deserts  and  the  standard  of 
altruistic  education  of  the  community.  Only  thus  are  both 
wealth  and  contentment  simultaneously  attainable.  In  order 
to  realize  this  ideal,  the  following  measures,  which  fall  into 
two  categories,  (A)  immediately  applicable,  and  compulsory, 
(B)  gradually  operative,  and  educational,  must  be  adopted. 

(A)  IMMEDIATELY  APPLICABLE,  AND  COMPULSORY 

1.  The  establishment  of  an  Industrial  Council,  representing 
productive  capital  and  productive  labour,  to  control  national 
wealth-production. 

2.  The   institution   of   a   Wages    Board,   attached   to   the 
Industrial   Council,    the   executive   of  which,    comprising  the 
most  skilled  manual  workers  from  every  industry,  will  deter- 
mine  the   relative   skill    of   workers    in   various   occupations, 
basing  its  awards  upon  the  time  and  effort  required  to  attain 
permanent  proficiency.      It  will  also  determine  the  hours  of 
labour  in  every  industry,  remembering  the  essential  importance 
of  maximum  production. 

3.  The  awards  by  the  Wages  Board  of   the  living  wage 
payable   to    every    unskilled   worker,    for   himself   and    each 
dependent,  the  dirty  money  payable  to  those  in  unpleasant 
occupations,    and   the   wealth-wage   of   all,   both   skilled   and 
unskilled,  to  be  related  to  the  value  of  money  in  the  preceding 
year,  or  years.     From  the  annual  expansion  in  the  national 
wealth-production  the  purchasing  power,  if  not  the  amount, 
of  the  wealth-wage   paid  in  every  industry  and  occupation 
will  grow  continuously. 

4.  The  computation  from  a  census  of  production  at  stated 
intervals  of  the  value  produced  per  head  in,  or  the  '  quality ' 
ofj  the  principal  industries. 

5.  The  treatment  of  agriculture  as  an  industry  of  high 

318 


A  NEW  SYSTEM  OF  GOVERNMENT 

quality,  primarily  on  the  grounds  of  national  health  and  security. 
The  farmers,  while  compelled  to  pay  good  wages  rising  with 
their  profits,  to  be  encouraged,  by  the  guarantee  of  a  market 
for  their  produce,  to  increase  their  output  to  the  utmost  limit. 
As  a  result,  the  value  of  money  will  rise,  i.e.,  the  number  of 
hours'  labour  exchangeable  for  a  man's  necessaries  of  life  will 
fall,  and  the  permanently  prosperous  farmers  and  their  labourers 
each  contributing  his  proper  quota  to  the  country's  revenue, 
the  community  will  benefit  from  a  thriving  husbandry. 

6.  The  application  of  identical  conditions  to  all  the  nation's 
most  skilled  and  highest-quality,  or  wealth-producing,  industries. 

7.  The   immediate   adoption  in  all  such  industries,  where 
the  divisible  amount  is  considerable,  of  profit-sharing,  or  bonus, 
schemes. 

8.  The  prices  of  all  necessaries  of  life  to  be  permanently 
controlled. 

9.  The  imposition  of  a  differential  income  tax,  depending 
on  the  source  of  wealth,  whereby  the  producers,  on  whom  the 
prosperity  of  the  whole  population  depends,  will  pay  the  least, 
and  will  therefore  be  encouraged  to  produce  more,  while  the 
calling  of  a  middleman  will  fall  into  disfavour. 

10.  A  large  scheme  of  reafforestation,  which  will  employ  many 
men  under  healthy  conditions,  to  be  financed  by  the  State. 

11.  The  development  of  skilled  industries,  to  be  stimulated 
by  grants  of  money  for  both  national  and  private  research  work. 

12.  The    Industrial  Council  to  regulate  foreign  trade,  by 
prohibiting  the  import,   except  the  home  demand  exceeds  the 
maximum  output,  of  any  products  which  compete  with  the 
nation's  most  skilled   industries,   or  by  instituting  a  sliding 
scale  of  protective  duties,  depending  on  the  '  quality  '  of  the 
industries. 

13.  The  export  of  the  products  of  skilled  labour  will  be 
assisted,  where  necessary,  even  by  bounties,  whereas  that  of  the 
products  of  unskilled  labour,  or  of  raw  material,  such  as  coal, 
save   for    exceptional   reasons    connected   with    international 
political  relations,  will  be  discouraged      Since  all  will  have  the 
right  to  follow  such  a  policy,   its  institution  by  any  nation 
cannot  be  a  cause  of  international  ill-feeling. 

319 


THE  REAL  WEALTH  OF  NATIONS 

14.  The  establishment  of  an  International  Commission  of 
wealth-producers,  not  financiers,  to  fix  and  control  the  rate 
of  exchange  between  each  country,  according  to  the  real  value 
of  money  in  the  respective  countries. 

(B)  GRADUALLY  OPERATIVE,  AND  EDUCATIONAL 

1.  A  radical  improvement  in  the  status  of  all  teachers. 

2.  The   universal   promulgation   of  the   truth   that    value 
is  measurable  and  independent  of  demand,  whence,  it   being 
recognized  that  wealth  is  due  to  the  skill  and  brains  of  producers, 
it  will  be  natural  to  choose  them  as  the  nation's  representatives 
to  govern  the  country. 

3.  The    education    of    wealth-producers    that    they    may 
sincerely  accept  the  postulate  that  if  a  man  creates  wealth 
it  is  his  duty  to  allow   the   less   fortunate   to   share   in  the 
result  of  his  efforts. 

4.  All  middlemen  to  be  licensed  and  their  number  limited 
and  gradually  reduced,  for,  the  price  of  all  necessaries  of  life 
(through  which,  also,  the  cost  of  producing  luxuries  is  decided) 
being  controlled,  much  wasteful  competition  can  be  avoided. 

5.  Lectures  on  real  thrift,  i.e.,  the  avoidance  of  waste  in  * 
goods    or   labour,  to   be   delivered  throughout   the    country, 
whereby  co-operation  will  not  cease,  as  at  present,  with  pro- 
duction, but  will  extend  to  the  distribution  of  all  commodities, 
a  start  being  made  with  the  necessaries  of  life. 

6.  Nationalization  of  the  profits  from  mining  coal,  after 
compensating  the  present  proprietors,  efficient  control  being 
ensured  by  leaving  the  working  of  the  mines  in  private  hands, 
and  by  making  the  reward  of  capital,  management,  and  labour 
dependent  upon  the  output  per  man. 

From  the  adoption  of  these  measures  will  follow  a  reduc- 
tion in  the  number  of  non-producers,  such  as  miners,  transport 
workers,  exporters,  importers,  merchants,  shopkeepers,  and 
many  other  unnecessary  middlemen,  etc.,  which  will  liberate 
a  mass  of  labour  for  the  production  of  wealth,  and,  the  most 
skilled,  newest,  and  best-paid  industries,  for  the  products 
of  which  there  is  an  insatiable  demand,  being  presently 
320 


A  NEW  SYSTEM   OF  GOVERNMENT 

protected,   brains,   capital  and  labour  can,   and  will,    all   be 
attracted  to  them. 

Recognition  of  the  importance  of  the  industries  in  which 
the  wealth-production  per  worker  is  highest,  and  the  conse- 
quent reservation  to  each  nation  of  its  market  for  their  output, 
will  alone  make  possible  proper  pensions  for  crippled  fighters 
and  the  dependents  of  the  dead,  provide  for  adequate 
remuneration  of  all  teachers,  whereby  the  best  brains  in  the 
country  can  be  attracted  to  this  trying  profession,  and  at 
the  same  time  ensure  the  continuous  growth  of  the  industries 
themselves. 

An  equitable  distribution  of  wealth,  based  on  the  value 
of  each  man  to  the  community,  the  estimation  of  which  we 
have  shown  to  be  possible,  together  with  a  constant  advance 
in  altruistic  education,  will,  by  inciting  all  to  do  their  best, 
ensure  not  only  the  wealth,  but,  what  is  far  more  important, 
the  contentment  of  every  nation. 

The  fundamental  truth  of  Economics  lies  in  the  essential 
distinction  between  '  necessary  '  and  '  luxury  '  value,  whereby 
alone  wealth  becomes  measurable,  and  its  real  source  in  the 
skill  and  brains  of  producers  is  made  apparent. 

The  War  has  not  altered  the  laws  of  Economics,  but 
merely  exposed  the  fallacies  of  certain  postulates,  which 
are  still,  nevertheless,  as  generally  accepted  to-day  as  the 
theories  of  Copernicus  were  rejected  only  some  three  hundred 
years  ago. 

Just  as  a  teacher's  most  important  function  is  to  instil 
right  principles  into  his  pupils,  that  of  a  Government  should 
be  to  obtain  undeviating  observance  of  economic  laws,  for 
any  paltering  with  these  foredooms  to  failure  all  schemes  of 
national  betterment  or  reconstruction. 

The  reader  will  have  realized  ere  now  that  the  real  wealth 
of  any  nation  depends  neither  upon  its  size,    natural  wealth, 
nor  man-wealth,  but  solely  upon  the  quality  of  its  inhabitants, 
as  indicated  by  the  rate  of  its  production  of  material  wealth, . 
and  by  the  use  which  it  makes  of  its  leisure. 

This  book  was  written  at  the  suggestion  of  some  who, 
discerning  in  the  arguments  of  the  author  certain  incontro- 

321 


THE  REAL  WEALTH  OF  NATIONS 

vertible  principles,  look  forward  with  him  to  a  new  world  and 
the  evolution  of  order  from  the  existing  economic  chaos.  It 
was  not  undertaken  to  vindicate  any  class,  nor  to  prove 
any  system  wrong,  but  originated  in  an  attempt  to  discover 
the  real  effects  of  exports  and  imports  upon  the  national 
well-being.  Should  it  succeed  in  awakening  the  interest 
of  those  in  whose  hands  lie  the  destinies  of  the  human  race, 
the  author's  efforts  will  not  have  been  in  vain. 


322 


INDEX 

The  numbers  in  parentheses  refer  to  the  Axioms 


ABOLITION  of  corn  laws,  258 
Acquisition  of  wealth,  7-9,  147  et  seq., 

186-192,  209-215,  254,  306 
Advertising,  cost  of,  157,  158 
Agricultural  industry,  quality  of, 

124,  155,   156,   165,   166,  258,  259, 

319 

Agriculture,  and  value  of  money,  75 
et  seq.,  194-206,  319  ;  importance 
of,  124,  154-160,  165,  1 66,  178,  179, 

258,  259,  319;    and  national  inde- 
pendence, 154-160,  165,  1 66,  179, 

259,  319  i     and    Protection,    210 
et  seq.,  217  et  seq.,  259,  319  ;    and 
industry,  217  et  seq.,  259,  318,  319  ; 
and  Free  Trade,  258,  259 

Altruistic  education — see  Education 
Amenities  and  civilization,  107 
Animals,  unable  to  increase  produc- 
tion or  to  produce  wealth,  7 
Appetite,  order  of,  263,  264 
Arkwright,  Richard,  33,  259 
Autocracy,  10,  11  ;   and  progress,  146 
Availability,  of  wealth,  i  (2),  13,  95, 
100,  101,  315  et  seq.  ;  of  necessaries 
and  luxuries,  2  (15),  36-39,  68  ;   of 
skilled  industries,  239-243 
Axioms,  of  Economics,  1-3  ;  of  Free 
Trade,  278-288 


BALANCE  of  exports  over  imports,  69, 
70,  113,  181-185,  280,  281  ;  and 
national  wealth-production,  113, 
181-185,  280-282,  290  ;  and  stan- 
dard of  living,  182-185 »  and 
capital,  182-185,  281 

Balance  of  trade,  200-203  ;  and  rate 
of  exchange,  200-203  ;  and  pro- 
ducts of  skilled  labour,  201 

Bankers,  66,  87  ;  profits  of,  66,  300 
et  seq.  ;  and  credit,  197-200  ;  and 
rate  of  exchange,  197-200 ;  national 
interests  ignored  by,  198  ;  and  Free 
Trade,  271,  272 

Bargain,  both  parties  never  benefit 
from  same,  54-59,  160,  262  et  seq. 


Beggars,  toleration  of,  106,  315 
Bell,  Sir  H.,  on  unemployment,  292, 

293 

Beneficiaries  of  Free  Trade,  271-298 

Benefits,  of  foreign  trade,  186-192  ; 
of  international  competition,  186- 
192 

Bolshevism,  effect  of,  109,  no,  247- 
249,  293-295  ;  and  law  of  supply 
and  demand,  109,  no,  247-251, 
294,  295  ;  the  logical  outcome  of 
false  economics,  225,  247-251,  293- 
295  ;  and  the  Victorian  economists, 
225  ;  or  civilization,  247-251,  293- 
295  ;  and  wealth-production,  247- 
249,  293-295  ;  and  wealth-distribu- 
tion, 293-295,  303  et  seq. 

Bonuses  and  skilled  industries,  241, 
242,  319 

Bounties  for  exporters,  241,  242,  319 

Bourgeois  and  proletariat,  no,  249 

Bread,  value  of,  28  et  seq.,  263,  264  ; 
Free  Trade  and  cheap,  258,  259  ; 
Protection  and  real  cost  of,  295- 
298 

Britain,  industrial  supremacy  of,  1 76, 
177,  210,  232,  258,  259,  267-270  ; 
export  of  coal  and  prosperity  of, 
180,  181,  184,  185,  259,  272,  284, 
285  ;  and  Free  Trade,  258,  259, 
269-270 ;  greatest  industries  of, 
284,  285 

Brotherhood  of  man,  18 

Buying  in  the  cheapest  market,  and 
sweating,  120  ;  and  the  value  of 
money,  218-225  •  an(i  standard  of 
living,  219-225,  250,  251,  268,  269  ; 
and  civilization,  220-225,  259-261, 
268,  269  ;  and  selling  in  the  dearest, 
226,  227  ;  and  Free  Trade,  257  et 
seq.;  and  international  trade — see 
Foreign  trade.  See  also  Liberty  to 
buy 


'  CA  CANNY,'  policy  of,  142,  311 
Cannan,  Prof.  Edwin,  249 


323 


THE  REAL  WEALTH  OF  NATIONS 


Capital,  and  production  of  wealth, 
2  (12),  2  (13),  34,  71,  72,  127-140, 
I79-I85.  213,  249,  250,  275-277, 
281,  320  ;  unproductive,  67-72, 
136-138  ;  of  middleman  and  pro- 
ducer, 69-72, 127-140  ;  and  labour, 
72,  127-140,  257  et  seq. ',  interest  on, 
72,  130-140,  320  ;  and  taxation, 
102  ;  national,  113,  114,  122-126, 
186-188  ;  export  of  national,  114, 
179-188,  259,  272,  279  et  seq.} 
necessity  for,  127-132;  productive, 
127-140  ;  and  employers,  127-142, 
228,  229,  257  et  seq.  ;  and  risks, 
130-136;  and  thrift,  130,  131,  137; 
and  skilled  industries,  133-140, 
183,  184,  198,  320  ;  and  popula- 
tion, 134  ;  and  standard  of  living, 
1345  conscription  of,  136-138;  and 
balance  of  exports  over  imports, 
182-185,  281  ;  invested  abroad, 
183,  184,  198,  238-243,  281  ;  in- 
vested at  home,  184  ;  and  credit, 
198  et  seq.  ;  and  size  of  a  nation's 
market,  213  ;  and  foreign  compe- 
tition, 275-277  ;  and  foreign  trade 
— see  Foreign  trade  ;  natural — see 
Natural  capital 

Capitalists,  may  be  benefactors,  34  ; 
all  can  never  be,  130  ;  enterprise 
of,  130-132  ;  and  foreign  invest- 
ments, 183,  184,  198,  281  ;  and  ex- 
ports, 186-192  ;  national  interests 
and  international,  197-206,  280  et 
seq. ',  and  the '  Internationale,'  248- 
251;  exploitation  of  the  proletariat 
by  the,  248, 25 1 ;  and  Karl  Marx,  249 

Casual  labour,  diminution  of,  314, 
315.  320 

Census  of  production,  215,  318 

Chamberlain,  J.,  290,  291 

Cheap  bread,  and  Free  Trade,  258, 
259,  295-298 ;  and  Protection, 
295-298 

Cheap  imports,  and  prices — see  Prices ; 
and  skilled  industries — see  Foreign 
trade  ;  and  wealth-production — see 
Foreign  trade  and  national  well- 
being 

Cheap  labour,  and  cheap  prices — see 
Labour  and  prices ;  and  employers — 
see  Employers  of  unskilled  labour ; 
and  exports — see  Foreign  Trade 
and  labour-hours  ;  and  Free  Trade 
— see  Labour  and  Free  Trade 

Cheap  prices,  and  individuals,  63, 
145, 204-206, 219-225 ;  and  national 

324 


well-being,  204-206,  219-225;  and 
cheap    labour  —  see    Labour    and 
prices ;  and  cost  of  production — see 
Prices   and   production  ;    and  im- 
ports— see  Prices   and    cheap  im- 
ports ;  and  middlemen — see  Middle- 
men ;  for  export — see  Prices,  low 
export ;  and  wages — see  Prices  and 
their  relation  to  wages 
Children,  rights  of,  26-28,  104-107 
Christianity  and  the  laws  of  Econo- 
mics, 252-254 
Circulation,  amount  of  money  in,  75 

et  seq. 
Cities,  the  seats  of  government  built 

by  the  producer,  72,  304 
Civil  war,  and  strikes,  139,  140,  310  ; 
and  the  '  Internationale,'  249-251 
Civilization,  depends  upon  work,  i  (9), 
8,  16,  19,  24,  44  ;  not  due  to  com- 
petition, 2  (21),  5-8,  19-23,  141- 
149,  161-168,  229-243,  274-277, 
315,  320 ;  its  source  and  rela- 
tion to  unrestricted  liberty,  5-11, 
141-146,  158,  258,  315  ;  limita- 
tion of,  6  ;  necessitates  intercourse 
between  superior  men,  6,  7,  9, 
141,  142,  161-168,  234,  244-251  ; 
highest  form  of,  7  ;  pioneers  of,  7  ; 
and  desire  to  produce  wealth,  7, 
162,  254 ;  self-discipline  essential 
to,  10  ;  downfall  of,  10,  n,  146 — 
see  also  Bolshevism  ;  and  right  of 
individual  existence,  13  ;  and 
sanctity  of  the  home,  15  ;  differ- 
ence in  various  countries,  16  ;  due 
to  work  of  superior  men,  16,  24,  33, 
97  ;  not  due  to  natural  wealth,  23, 
24,  95  ;  and  subdivision  of  labour, 
45  et  seq.  ;  and  skilled  industries, 
98-100,  107-111,  152-154,  160, 
220-225,  237,  240-243,  266-270  ; 
and  taxation,  100,  102,  137,  138  ; 
necessitates  government,  100,  291 
et  seq.,  299,  300  ;  and  living  wage, 
103-111  ;  and  amenities,  107  ;  and 
rights  of  superior  men,  107-111, 
247-249,  293-295,  299  et  seq.  ;  and 
wealth -wage,  108  ;  and  unskilled 
labour,  120,  121,  239-243,  266-270, 
274-277  ;  and  leadership,  128, 
293-295,  299  et  seq.  ;  and  strikes, 
138-140,  310  ;  and  war,  145,  148  ; 
and  producer's  profit,  147,  176, 
177  ;  and  contentment,  159-162, 
318,  321  ;  and  economic  subjec- 
tion of  inferior  races,  163  ;  and 


INDEX 


internationalists,  165-168,  247- 
249  ;  and.  colonization,  167,  168  ; 
and  restriction  of  credit,  198  ;  and 
buying  in  the  cheapest  market, 
220-225,  259-261,  268,  269  ;  and 
labour-hours,  220-225,  234,  258, 
270  ;  and  law  of  value,  227,  249, 
293-295  ;  and  international  com- 
petition, 244-251  ;  and  laws  of 
Economics,  249-253  ;  and  choice 
of  industries — see  Industries,  na- 
tional choice  of;  and  desire  to 
possess  wealth — see  Wealth,  ac- 
quisition of  ;  and  distribution  of 
wealth — see  Distribution  of  wealth; 
and  education — see  Education  ; 
and  foreign  trade — see  Foreign 
trade  ;  and  Free  Trade  —see  Free 
Trade  and  civilization ;  and  la- 
bour— see  Foreign  trade  and  civili- 
zation ;  and  law  of  supply  and 
demand — see  Law  of  supply  and 
demand  ;  and  Protection — see  Pro- 
tection and  civilization ;  economic 
liberty  incompatible  with — see 
Economic  liberty  ;  force  essential 
to  —  see  Force.  See  also  Co- 
operation 

Class-war,  100,  138,  140,  249-251, 
303  et  seq. 

Climate,  effect  of,  18  ;  and  civiliza- 
tion, 26  ;  and  unit  of  value,  162, 
163  ;  and  production  of  wealth, 
162-168 

Coal,  95  ;  and  industrial  develop- 
ment, 113,  114  ;  and  law  of  supply 
and  demand,  114,  115;  intrinsic 
value  of,  114,  122-126  ;  export  of, 
114,  175,  179-188,  213-215,  259, 
272,  279  et  seq.,  309,  319  ;  con- 
servation of,  126,  1 80,  181  ;  ex- 
change of  wheat  for,  179-181,  259, 
284  ;  and  Free  Trade,  180,  181, 
184,  185,  259,  272,  284.  285  ;  inter- 
national competition  in,  229 ;  taxa- 
tion of,  280,  308,  309  ;  shipping, 
textiles,  and,  284,  285 

Coal-mines,  nationalization  of,  150, 
320 

Cobden,  Richard,  259 

Colliery-owners,  114,  300 

Colonization,  justification  for,  167, 
1 68  ;  international  rivalry  in,  168 

Combination,  into  tribes,  10  ;  into 
nations,  10  ;  of  superior  men,  n  j 
of  middlemen,  68  ;  of  producers, 
68  ;  of  workers  and  wages,  88,  89  ; 


of  men,  127,  128  ;  and  leadership, 
127,  128  ;    and  skill,  128,  129 

Commodities,  two  classes  of,  68  ;  and 
leisure,  112,  248;  value  of,  261 
et  seq.  ;  money  and  availability  of 
— see  Money  and  goods  ;  price  and 
cost  of — see  Price  and  cost ;  waste 
of — see  Waste 

Communal  state  of  existence,  15  ;  and 
subdivision  of  labour,  42-45 

Community  of  interest,  of  employers 
and  employed,  132-140,  223  ;  of 
all  with  the  producers — see  Pro- 
ducers ;  of  labour  and  capital — see 
Capital 

Compensation,  justice  of,  151,  308, 
3i4»  320 

Competition,  means  waste,  2  (21), 
143-145,  225,  320  ;  and  middle 
men,  62  et  seq.,  146,  147,  186-192 — 
see  also  Free  Trade  and  middlemen ; 
of  producers,  62  et  seq. — see  also 
Manufacturers  ;  and  dependents, 
104,  105;  of  married  and  unmarried 
men,  104,  107;  in  the  sale  of  goods 
and  labour,  141,  142  ;  versus  co- 
operation, 141-151,  315,  320;  and 
poverty,  143  ;  lor  profit,  143-150, 
214,  215,  242,  274-277  ;  and  cost 
of  production,  1 43-1 48, 1 55, 228,229, 
247,  251,  315,  320  ;  and  dishonesty, 

144  ;    not  the  cause  of  inventions, 

145  ;  and  efficiency,  145,  146  ;   and 
war,     145-148  ;     prevents    profit- 
sharing,  148,  149,  315,  320  ;    with 
U.S.A.,  177,  189,  196-206,246-248; 
and  Free  Trade  225,  236,  245-251, 
265-273,   277  et  seq.  ;    in  neutral 
markets,  229,  230,  283,  284  ;    and 
the' Internationale,' 248-251  ;  and 
force — see  Force  ;    and    hours     of 
labour — see    Labour-hours  ;      and 
wages — see  Wages  ;   not  the  cause 
of  progress — see     Civilization   not 
due  to  competition  ;   of  large  and 
small    nations — see     Nations ;     of 
manufacturers — see  Manufacturers. 
See  also  Foreign  trade  and  Inter- 
national competition 

Conditions   of   living — see   Standard 

of  living 
Confiscation  not  permissible,  151, 308, 

314.  320 
Conscription,  of  money,  127-138  ;  of 

capital,  136-138  ;  of  luxuries,  137 
Conservation   of    raw    material — see 

Raw  material 

325 


THE  REAL  WEALTH  OF  NATIONS 


Consumers,  not  a  class,  63  et  seq.,  300 ; 
have  no  virtues,  157  ;  and  Pro- 
tection, 224,  226  et  seq.,  259-261, 
287,  288  ;  and  Free  Trade,  224, 
259-261,  287  et  seq.  ;  and  pro- 
ducers— see  Producers 

Consumption,  of  necessaries,  i  (8), 
28,  31,  154,  155,  315  et  seq.  ;  pro- 
duction and,  61,  156-160,  211,  315 
et  seq.  ',  economy  in,  63,  315,  316  ; 
benefits  individuals  but  harms  the 
community,  156-158  ;  and  prices, 
157-162 

Contentment  and  civilization,  159- 
162,  318,  321 

Control,  of  prices  of  necessaries,  53- 
57,  226,  227,  317,  319  ;  of  middle- 
men's profits,  149,  300  et  seq.  ',  of 
rate  of  exchange,  201-206,  317- 
320  ;  by  middlemen,  300  et  seq.  ; 
of  industry,  312 

Co-operation,  2  (23),  9,  10 ;  for  the  pro- 
duction of  wealth,  2  (23),  126,  143- 
149,  155,  247-251,  320  ;  beneficial 
to  all  mankind,  2  (23),  320  ;  and 
subdivision  of  labour,  127-132, 
144-149  ;  versus  competition,  141- 
151,  315,  320  ;  the  cause  of  pro- 
gress, 142-149  ;  and  monopolies, 
143-149  ;  for  profit,  143-150  ;  of 
middlemen,  144-149  ;  and  dis- 
tribution of  wealth,  144-149,  320  ; 
and  profit-sharing,  148,  149  ;  or 
nationalization,  149-151,320;  and 
agriculture,  155  ;  international, 
192-206,  234,  243-251,  265-270, 
317-319 ;  Protection  does  not 
hinder  international,  234,  243,  319; 
civilization  and  international,  243- 
251  ;  and  the  '  Internationale/ 
248-251 

Copper  and  iron  ore,  122-126  ;  ex- 
port of,  187,  1 88 

Corn  laws,  abolition  of,  258 

Cost,  and  value,  27  et  seq.,  49,  52,  53  ; 
and  demand,  52  et  seq.,  69,  157, 
158  ;  and  law  of  supply  and  de- 
mand, 55-59,  253,  254  ;  and  price 
— see  Price.  See  also  Cost  of  pro- 
duction 

Cost,  of  middlemen,  61  et  seq.,  79  et 
seq.  ',  of  handling  goods,  62,  79  et 
seq. ;  of  the  best  things  in  life,  153, 
154  ;  of  imports,  159  ;  of  living, 
in  Free  Trade  and  Protected 
countries,  234-236,  287,  288;  of 
government — see  Government 

326 


Cost  of  production,  definition  of,  i 
(8),  27  et  seq.  ;  and  co-operation, 
2  (23),  126,  143-149,  155.  247-251, 
320  ;  and  profit,  52-55,  69,  80 
et  seq.,  144-149  ;  and'  consump- 
tion, 61,  156-160,  211  ;  and  raw 
material,  113,  114,  121-126,  265; 
and  nationalization,  149-151,  218, 
248,  320 ;  of  world-wealth,  161- 
168,  177,  178,  261-269  ;  and 
climate,  162,  163  ;  and  rate  of  ex- 
change, 194-206,  228,  229,  244-251, 
265,  270,  320  ;  and  competition — 
see  Competition  ;  and  exchange — 
see  Exchange,  equitable ;  and 
foreign  trade — see  Foreign  trade  ; 
and  Free  Trade — see  Free  Trade; 
and  labour — see  Labour  and  wealth- 
production  ;  and  output — see  Pro- 
duction of  wealth  ;  and  price — see 
Price  ;  and  prices — see  Prices  and 
production  ;  and  Protection — see 
Protection  ;  and  value — see  Value  ; 
and  value  of  money — see  Value 
of  money  ;  and  wages — see  Value 
of  money  and  output ;  national — see 
National ;  of  exports  and  imports 
— see  Foreign  trade  ;  of  luxuries — 
see  Luxuries.  See  also  Cost  and 
Production  of  wealth 

Credit,  and  rate  of  exchange,  197- 
200;  and  bankers,  197-200  ;  inter- 
national, 197-200  ;  and  produc- 
tion of  wealth,  198  ;  facilitates 
exchange,  198  ;  and  capital,  198 
et  seq.  ;  variation  in  terms  of,  198- 
200  ;  restriction  of,  198-200 

Currency,  issue  of,  75  et  seq.,  137,  138, 

201,  202  ;  depreciation  of,  137,  138, 
194-206  ;    international,  193-206  ; 
rate  of  exchange  and  inflated,  201, 

202.  See  also  Money 

Customs  duties,  cost  of  collecting,  232, 
288  ;  and  national  value  of  in- 
dustries, 238-243 


DEFINITION,  of  cost  of  production, 
i  (8),  27  et  seq.  ;  of  Economics,  3 
(31),  14  ;  of  wealth,  12-21  ;  of  unit 
of  value,  24-31  ;  of  necessaries  of 
life,  26  ;  of  intrinsic  value,  30  ;  of 
utility,  30  ;  of  skill,  32,  97  et  seq.  ; 
of  unskilled  men,  32,  97  et  seq.  ; 
of  luxuries,  36-39 ;  of  demand 
value,  40,  50-52  ;  of  exchange 
value,  46-52  ;  of  price,  46-52 


INDEX 


Demand,  value  of  luxuries  depends 
upon,  37-41,  53-55.  17I-I74»  262 
et  seq.  ;  and  profit,  46-52  ;  and 
price,  46-55,  69 ;  and  exchange,  46- 
52,  69,  171-174,  262  $t  seq.  ;  pre- 
ceded by  supply,  51  ;  transfers 
wealth,  51 ;  does  not  create  wealth, 

51,  225,  255,  262  et  seq.  ;   and  cost, 

52,  69,  157,  158  ;  and  waste,  157, 
158  ;    and   exchange    of    luxuries, 
171-174,  262  et  seq.  ;   law  of  supply 
and — see   Law  of  supply  and  de- 
mand 

Demand  value,  2  (19),  37  el  seq.,  46 
et  seq.,  262  et  seq.  ;  definition  of, 
40,  50-52  ;  may  be  negative,  50  ; 
benefits  the  seller,  51 

Democracy,  danger  of,  10,  IT  ;  future 
of,  10,  ii,  146  ;  and  autocracy,  10, 
ii,  146;  and  progress,  146;  re- 
presentatives of,  305  et  seq.  ;  and 
'  slackers,'  315 

Dependents,  and  competition,  104, 
105  ;  claim  of,  104-107  ;  and  em- 
ployers, 105  ;  and  income  tax, 
105-107  ;  and  wealth-wage,  107 

Depreciation  of  currency,  137,  138, 
194-206  ;  and  rate  of  exchange, 
194-206 

Development,  economic,  of  nations, 
152-160,  165-168,  267-270;  of 
skilled  industries — see  Skilled  in- 
dustries 

Diamonds,  value  of,  55,  263,  264 

Dietetics,  25,  29 

Direct  taxation,  101-102,  231 

Dirty  money,  108-111,  308-310 

Discontent  of  labour,  42,  103, 132,  306, 
307.  313.  317 

Dishonesty  and  competition,  144 

Displacement  of  labour,  223,  242,  283 

Distribution  of  wealth,  i  (2),  i  (3),  3  (3 1 ), 
7,  14,  15,  20,  40,  78^  80,  95-126, 
132,  133,  137.  138,  HO-I51.  164, 
165,  172,  218,  246-254,  261,  286- 
288,  305  ;  depends  upon  its  origin, 
14,  15.  20,  40,  95-100  ;  a  matter 
of  opinion,  15,  96,  100,  140,  150, 
227-229,  248-251  ;  must  be  un- 
equal, 40,  96,  97,  218,  306  ;  and 
value  of  money,  78,  80,  195,  196, 
218,  223,  286-288  ;  and  skilled 
labour,  97-100,  103-126,  305  ;  by 
wages,  and  the  national  value  of 
industries,  103-126,  218,  223,  228, 
229,  307  et  seq.  ;  and  employer's 
profit,  141,  142  ;  and  co-operation, 


144-149,320;  and  nationalization, 
149-151  ;  and  the  proletariat,  149, 
150,  247-249,  293-295,  303  ;  and 
civilization,  218,  227,  229,  248-254, 
305  et  seq.  ;  and  Protection,  226- 
237,  261,  287,  288  ;  and  the  '  Inter- 
nationale,' 247-251  ;  and  Free 
Trade,  257  et  seq.,  273-277,  287, 
288 ;  must  be  decided  by  pro- 
ducers, 293-295,  303  et  seq.  ; 
and  Bolshevism — see  Bolshevism  ; 
and  education — see  Education, 
altruistic  ;  and  monopolies — see 
Monopolies ;  and  the  producer — see 
Producers  of  wealth  ;  equitable 
— see  Equitable  ;  and  taxation — 
see  Taxation 

Distribution  of  world- wealth,  2  (27), 
3  (31),  18,  19,  164,  165,  218,  247- 

251 

Dividends,  132-140 
Downfall  of  civilization,  10,  ii,  146. 

See  also  Bolshevism 
Dumping,  anti-.  laws,  196 
Duties,  cost  of  collecting,  232,  288  j 

on    partly    manufactured    goods, 

283.     See  also  Protection 


ECONOMIC,  truths,  5-21,  321  ;  effect 
of  nationality,  15-20,  250,  251  ; 
effect  of  climate,  18 ;  problems 
and  the  frailties  of  man,  20,  299  ; 
efficiency,  30  ;  wealth,  40,  57,  321  ; 
education,  99,  150,  240,  295-298, 
320,  321  ;  well-being  of  a  nation, 
152-160,  165-168,  240,  267-270 ; 
development  of  nations,  152-160, 
165-168,  267-270 ;  licence  and 
production,  156-158,  220-225,  314; 
subjection  of  small  nationalities, 
163-168,  210,  222-225,  236  et  seq., 
251,  268,  269  ;  ignorance  and  dis- 
content— see  Discontent;  independ- 
ence of  nations — see  Independ- 
ence, national ;  meaning  of  skill — 
see  Definition  of ;  relations  of 
employers  and  employed — see  Em- 
ployers 

Economic  delusions,  10,  56-58,  121, 
150,  158,  163-165,  174-179,  210, 
224,  225,  230,  231,  240,  248-251, 
255-298,  303,  305-3°8.  3io-3i2  .* 
and  nationalization — see  Nationali- 
zation 

Economic  liberty,  10,  121,  158-168, 
216-225,  236  et  seq.,  250,  251,  278 

327 


THE  REAL  WEALTH  OF  NATIONS 


et  seq.  •  civilization  incompatible 
with — see  Civilization 

Economic  principles,  of  Free  Trade, 
255-298  ;  and  Tariff  Reform,  270, 
279,  290  et  seq.  ;  and  the  law  of 
supply  and  demand — see  Law  of 
supply  and  demand 

Economic  slavery,  154-160,  163-168, 
174,  178,  179,  210,  220,  224,  225, 
269 

Economic  war,  and  a  League  of 
Nations,  250,  251,  268,  269,  277  ; 
and  Universal  Free  Trade,  250,  251, 
268,  269,  277  ;  and  Protection — 
see  Protection 

Economics,  real  axioms  of,  1-3 ; 
deals  with  the  production,  ex- 
change, and  distribution  of  wealth 
by  man,  i  (2),  3  (31),  14,  15,  20  ; 
science  of,  i  (2),  12,  14,  15,  18,  30, 
31,  37,  161,  254  et  seq.,  304,  306, 
315,  316 ;  objective  of,  3  (31)  ; 
definition  of,  3  (31),  14  ;  concerns 
the  well-being  of  all,  12  ;  natural 
wealth  in  unlimited  quantities 
outside  the  scope  of,  15  ;  inter- 
national, 17,  121,  161-254  ;  na- 
tional, 23-160  ;  and  religion,  252— 
254  ;  and  women,  315,  316  ;  and 
politics — see  Economy,  political 

Economists,  and  luxuries,  53  et  seq.  ; 
and  unit  of  value,  53  et  seq.,  250, 
256,  257  ;  and  the  'law  of  supply 
and  demand,  53  et  seq.,  106,  253 
et  seq.,  293-295 

Economy,  in  consumption,  63,  315, 
316  ;  political,  66,  247-251,  253 
tt  seq.,  260,  261,  269,  270,  274-278, 

294.  295.  3M 

Education,  70,  71  ;  and  skill,  98-100, 
160,  240  ;  and  civilization,  98-100, 
107-111,  312,  313  ;  and  wealth- 
production,  117,  1 1 8,  150-154,  1 60, 
214,  215,  240,  245-251,  265-270, 
313,  320,  321  ;  and  national  well- 
being,  153,  154,  1 60,  240 ;  and 
luxuries,  160 ;  its  application  to 
industries,  214,  215,  240-243,  265- 
270,  308-313,  320,  321  ;  and 
international  co-operation,  245- 
251  ;  and  new  civilization,  312, 
313  ;  and  Protection — see  Protec- 
tion ;  economic — see  Economic 

Education,  altruistic,  95-102,  107, 
108,  131,  164,  165,  172,  307,  321  ; 
and  wealth-distribution,  95-102, 
107,  108,  150,  218,  227-^29,  240, 


248-251,  293-295,  303-307.  3i8. 
321  ;  and  taxation,  100-102,  138  ; 
and  rate  of  interest,  131  ;  of 
nations,  164,  163  ;  and  distribu- 
tion of  world-wealth,  164,  165  ; 
and  foreign  trade,  169-172  j  of 
unskilled  labour,  293-295 
Efficiency,  economic,  30  ;  industrial, 
43;  of  producers,  60-63,88-93, 106- 
in,  ,17,  118,  143-151,  157-160, 

177,    178,    211,    212,    248-251,    26l- 

267  ;  in  trading  operations,  61  ; 
of  transport  workers,  61  ;  of  non- 
producers,  61-63,  88,  89,  147 ; 
of  middlemen,  61-63,  88,  89, 
147,  304  ;  in  consumption,  63, 
315,  316  ;  encouragement  of,  106- 
in,  143-151  ;  and  competition, 
145,  146 ;  and  nationalization, 
149-151,  218,  248,  313,  320 ;  in 
coal -mining,  149-151,  218,  248, 
313,  320  ;  and  labour-hours,  160, 
248-251  ;  and  the  size  of  a 
nation's  market,  208-215  ;  and 
foreign  markets  for  skilled  in- 
dustries, 211-215,-  224,  225;  and 
international  competition,  268, 
269 ;  and  profits — see  Produce, 
inducement  to  ;  and  Protection — 
see  Protection 

Efficient  production,  and  value  of 
money,  75  et  seq.,  89-93,  155  ; 
and  necessity  for  wages,  88,  89  ; 
and  subdivision  of  labour,  88, 
89 ;  and  value  of  wages,  89-93, 
303  ;  and  foreign  trade,  160,  208- 
215,  224,  225,  261-269  ;  of  world- 
wealth,  161-168,  177,  178,  261- 
269  ;  and  reservation  of  a  market, 
211-214,  224,  225  ;  and  skilled  in- 
dustries, 213,  214,  224,  225  ;  and 
Protection — see  Protection 

Eight-hour  day  and  international 
competition,  248-251 

Emigration,  restrictions  on,  251 

Employers,  their  relation  to  capital 
and  labour,  45,  127-142,  178,  228, 
229,  242,  257  et  seq.,  301-307,  312  ; 
and  number  of  dependents,  105  ; 
necessity  for,  127-132  ;  introduc- 
tion of,  127-140  ;  skill  of,  128-140  j 
and  national  value  of  industries, 
128-140,  216,  223,  242,  257  et  seq.  \ 
and  wages,  128-140,  178,  223,  228, 
229,  266-277,  283,  284,  301-307  i 
enterprise  of,  130-132  ;  and  com- 
munity of  interest  with  employees, 


328 


INDEX 


132-140,  223  ;  of  unskilled  labour, 
133-135.  *78»  260-270,  272-277, 
301,  303,  307  ;  of  skilled  labour, 
134-140,  223,  228,  229,  242,  283, 
284,  301,  303,  307,  320,  321  ;  and 
strikes,  138-140  ;  prices  and  cost 
of,  141,  142,  223  ;  and  exports,  187- 
192,  260-277,  283,  284  ;  and  Free 
Trade,  260-270,  272-277  ;  and  Pro- 
tection— see  Protection  ;  profits  of 
— see  Profits 

Employment,  and  waste,  156-158, 
242,  289  et  seq.,  315  et  seq. ;  wealth- 
wage  and  loss  of,  223,  242,  283  ; 
and  foreign  trade,  187,  223,  242, 
289,  311 

Energy,  97  ;  of  hand  or  brain,  98  ; 
limit  of,  98 

England,  her  wealth  not  due  to  Free 
Trade  but  to  quality  of  her  in- 
dustries, 176,  177,  210,  232,  258, 
259,  267-270  ;  and  influence  of  Free 
Traders,  258  et  seq,,  267-270,  275- 
277  ;  her  industrial  decline,  259  ; 
her  industrialism  in  the  nineteenth 
century — see  Britain 

Enterprise,  of  employers  and  capi- 
talists, 130-132 

Environment,  effect  of,  17 

Equal,  men,  2  (14),  2  (24),  5-11  ; 
distribution  of  wealth  impossible, 
96,  97,  218 

Equal  wages,  injustice  of,  103,  104  ; 
for  men  and  women,  106,  107 ; 
for  equal  work,  106-111 

Equality,  5  ;  and  nationalization, 
150 ;  of  labour  and  rate  of 
exchange,  193-206  ;  of  labour 
and  international  exchange — see 
Labour 

Equitable,    distribution    of    wealth, 

3  (3i).  95-97.  103-111.  132,  133. 
144,  149,  172,  248-251  ;  foreign 
trade,  172,  191,  193-206,  245-247, 
254  ;  wages — see  Wages 
Equitable  exchange,  and  interna- 
tional co-operation,  192-206,  234, 

243-251,  265-270,  317-319 ;    of 

money,  193-206  ;  necessity  for — 
see  Exchange 

Evolution,  of  man,  2  (24),  5-11,  15  ; 
of  nations,  2  (25),  15-21 

Exchange,  equitable,  3  (31),  45-59, 
65,  170-181,  191-206,  245-247,  254, 
265,  317  ;  laws  of,  15,  20,  46  et 
seq.  ;  necessitated  by  subdivision 
of  labour,  42-59 ;  and  labour- 


hours,  45-49,  60,  121,  193-206, 
208-225,  257  et  seq.,  266-270,  317  ; 
and  skill,  46  et  seq.  ;  preceded  by 
production,  46  et  seq.,  69,  261  et 
seq.',  and  utihtr,  46  et  seq.,  262 
et  seq. ;  cannot  increase  total  of 
intrinsic  wealth,  51  et  seq.,  60  et 
seq.,  249,  255  et  seq.  ;  cannot 
benefit  both  paities,  54-59,  160, 
261  et  seq.  \  causes  a  transfer  of 
wealth,  54-59,  60  et  seq.,  261  et 
seq.  ;  money  necessary  for,  73  et 
seq.,  88,  89  ;  variation  in  the  rate 
of,  194-206,  244-251,  265-270  ; 
international  co-operation  and  a 
fair  rate  of,  194-206,  234,  243- 
251,  265-270,  317-319 ;  is  not 
money  for  goods,  but  labour  for 
labour,  257  et  seq.  ;  a  nation  must 
not  lose  by — see  Foreign  trade 
and  national  well-being  ;  and 
demand — see  Demand  ;  civiliza- 
tion and  international — see  Foreign 
trade  ;  international — see  Foreign 
trade  ;  loss  through — see  Profit 
on  ;  money  and  international  rate 
of — see  Value  of  money 

Exchange,  of  wealth,  15,  42-61,  179- 
181,  244-254  ;  of  services  for 
services,  45  ;  of  goods  for  labour, 
45,  60  et  seq.  ;  of  goods  for  services, 
45,  60  et  seq.,  173,  178,  179  ;  of 
goods  for  goods,  45,  46,  256  et  seq., 
261  et  seq.  ;  of  labour,  45-49,  60, 
121,  170-181,  208-225,  257  et  seq., 
266-270  ;  of  equal  hours  of  work, 
47,  48,  170-181,  257  et  seq.  ;  of 
clothes  for  food,  48  j  of  skilled 
for  unskilled  labour,  48,  49,  121, 
208-225,  257  et  seq.,  266-270  j  of 
coal  for  food,  179-181,  259,  284  ; 
of  labour-hours  and  civilization, 
220-225,  266-270  ;  of  money  and 
goods — see  Money  and  goods 

Exchange  of  luxuries,  2  (20),  53-55, 
159,  169,  171-174,  177,  262  et  seq.  ; 
for  necessaries,  54,  55  ;  and  de- 
mand, 171-174,  262  et  seq. 

Exchange  of  necessaries,  should  take 
place  on  basis  of  utility  or  intrin- 
sic value,  46  et  seq.,  317  ;  for  luxu- 
ries, 54,  55,  See  also  Necessaries 

Exchange  value,  or  price,  2  (19), 
49-55,  115,  171-181,  210;  ^  in- 
trinsic value  +  demand  value,  2 
(19),  52-55  ;  and  intrinsic  value, 
2  (19),  48-50,  53  et  seq.,  317  ; 

329 


THE   REAL  WEALTH  OF  NATIONS 


definition  of,  46-52  ;  and  skill, 
49-55,  115  ;  the  seller  benefits  by 
increase  of,  51  ;  =  cost  4  profit, 
52  ;  of  luxuries,  53-55,  69,  80  et 
seq.  :  and  foreign  trade — see  Prices  » 
of  necessaries — see  Price  of 

Existence,  the  right  of  individual, 
*3.  103-111  ;  of  nationalities,  16- 
20,  163-168,  210-215,  222-225. 
236  et  seq,,  250,  251,  267-269,  277 

Exploitation,  of  subject  races,  165- 
168  •  of  producers  by  middlemen, 
196-206,  300  et  seq. ;  of  the  pro- 
letariat by  the  capitalist,  248- 
251  ;  international — see  Profiteer- 
ing ;  of  producers  in  foreign  trade — 
see  Foreign  trade  and  middlemen 

Export,  of  natural  capital,  114,  175, 
179-188,  213-215,  259,  272,  279 
et  seq.,  309,  319  ;  of  capital,  179- 
188,  259,  272,  279  et  seq.  ;  of 
textiles,  241,'  242,  259,  284,  285  ; 
tax  on  coal,  280  ;  and  foreign  loans 
— see  Foreign  trade  and  capital ; 
of  coal — see  Coal  ;  trade  and  the 
size  of  a  nation's  market — see 
Market.  See  also  Foreign  trade 

Exporters,  benefit  at  the  expense  of 
their  country,  169-174,  186-192, 
265,  271-277  ;  benefit  through 
international  competition,  186- 
192  ;  and  Free  Trade,  271-277 

Exports,  balance  of,  over  imports, 
69,  70,  113,  181-185,  280,  281  ; 
and  the  producers,  186-192,  202, 
207-215,  230-243,  258-272,  278- 
288 ;  and  Free  Trade,  224,  225, 
236,  248-252,  257  et  seq.,  271  et  seq. ; 
and  capitalists — see  Foreign  Trade  ; 
and  employers — see  Employers  ; 
and  labour — see  Foreign  trade  and 
labour-hours.  See  also  Foreign 
trade 

Extravagance,  86,  315 


FALLACIES  of  Free  Trade,  271-298 

Farmers,  and  Protection,  210  et  seq., 
217  et  seq.,  259,  319 ;  and  Free 
Trade,  258,  259  ;  profits  and  taxa- 
tion of,  259-261,  319 ;  increased 
output  from,  319 

Fashion,  and  price  of  luxuries,  53- 
55,  80  et  seq. ;  and  unemployment, 
311  ;  and  women,  316 

Fatigue,  of  the  body,  43 ;  of  the 
mind,  43 

330 


Finance,  international,  197-206 

Financiers,  and  profiteering,  199- 
202  ;  power  of,  201-206  ;  benefit 
by  variable  rate  of  exchange,  201- 
206  ;  and  war,  202  ;  necessity  for, 
206 ;  must  not  control  rate  of 
exchange,  320 

Fisher,  H.  A.  L.,  240 

Food,  production  of,  26-29,  48,  139, 
179-181,  259,  284;  value  of,  28 
et  seq.,  263,  264 ;  exchange  of 
clothes  for,  48  ;  exchange  of  coal 
for,  179-181,  259,  284  ;  price  of — 
see  Necessaries ;  Protection  and 
production  of — see  Protection  and 
agriculture 

Force,  2  (26),  9,  10,  17,  20,  142-146, 
I53»  *58»  161-168,  310  ;  rule  of, 
9,  20,  56,  106,  220-225,  253,  254, 
293-295,  306,  312  ;  and  civiliza- 
tion, 10,  142,  146,  153,  220-225  ; 
and  transiency  of  nations,  17  ; 
animals  recognize  only,  20 ;  not 
the  basis  of  economic  laws,  20, 
142,  146,  199,  200,  220-225,  254  ; 
and  competition,  144,  145,  153, 
161-168,  220-225 ;  and  preven- 
tion of  strikes,  158  ;  and  inter- 
national trade,  161-168,  199,  200, 
209-215,  220-225,  254  ;  and  rate 
of  exchange,  199,  200  ;  and  right 
to  buy  in  the  cheapest  market, 
220-225  >  Free  Trade  and  the  law 
of,  224 

Foreign  competition  —  see  Inter- 
national competition 

Foreign  investments,  183-185,  198, 
281  ;  interest  from,  183,  184  ;  and 
export  of  the  products  of  home 
skilled  labour,  183,  184,  198,  238- 
243  ;  and  import  of  the  products 
of  foreign  skilled  labour,  183,  184, 
198,  238-243 

Foreign  markets,  importance  of,  207- 
215,  236-243,  265-277 

Foreign  trade,  2  (29),  3  (30),  112. 
113,  160,  169-185,  193-206,  256 
et  seq.,  265-270 ;  and  national 
well-being,  2  (29),  69,  114,  115, 
145,  146,  159-251.  256  et  seq., 
274  et  seq.,  290  et  seq.  ;  and  war, 
3  (30),  170,  188-192,  202,  236, 
250,  251,  268,  269,  277 ;  and 
civilization,  20,  98,  159-192,  210, 
216-225,  242-251,  261,  265-270, 
274-277,  283,  284  ;  and  middle- 
men, 62-69',  186-192,  196-206, 


INDEX 


209-215,    245-247,    271-277  ;    and 
introduction     of     money,     73-87. 
193-206  j  and  cost  of  production, 
121,    143,    159-192,   203-216,   224, 
225,   228,    229,   236-243,   256-258, 
261-269,    277  et  seq.  ;  and  skilled 
industries,  145,  146,  160,  168-192, 
196-198,    203-216,    223-225,    230- 
243,   246-251,   257-288,    312,   313, 
319  ;  and  necessaries  of  life,  159- 
177,    194-206,   259 ;  and   luxuries, 
159,  169-174,  177,  262;  and  labour- 
hours,  159,   1 60,  166-192,  209-215, 
223-225,    238-243,    246-251,    259, 
265  et  seq.,  274-277,  283  et  seq. ;  and 
producers,  160,  174-181,  186-215, 
223-225,    228,    229,    238-243,    261 
et  seq.,   278  et  seq.  ;   and  intrinsic 
value,    170-181,   209 ;   and  world- 
wealth,   172-181,   242-251  ;  equit- 
able, 172,  191-206,  245-247,  254  ; 
and    home    trade,    172-185,    258  ; 
and  inventions,  176,  177,  210  ;  and 
transport  workers,    179-181,    186- 
192  ;    and   capital,    179-192,    198, 
259,  272,  275  et  seq.  ;  and  employ- 
ment,   187,    223,    242,    289,    311  ; 
and     unskilled     labour,     187-192, 
195-206,    210,    213-215,    223-225, 
232,  236,   242,   259,   266-277,   290 
et  seq.    319;   restriction  of,    187- 
192,    226-237,    282,    308    et    seq., 
319 ;    and    wages,    189-192,    204, 
205,   200,  210,  216-237,   242,   257 
et  seq.,  271-277,  282  et  seq.  ;  and 
value    of    money,    190-206,    218- 
225,  229,  230,  242  ;  and  competi- 
tion,  192,  225,  229-237,  241-251, 
259-270,   283,   284,   319  ;  and  co- 
operation, 192,  234,  243-251,  319  ; 
and    rate    of    exchange,    194-206, 
228,   229,   234,   243-251,   265-270, 
317-319  ;      and     buying     in     the 
cheapest    market,    203-206,    222- 
225,  257-261,  268,  269,  277;    and 
importance  of   markets,    207-225, 
229-245,   248,   251,   265-277,   283, 
284  et  seq.  ;  and  greed  of  man,  209- 
215 ;    and    Protection,    217,    222- 
225,    229-237,    241-245,    259-277, 
283,     284,      319  ;     and     Britain's 
industrial  supremacy — see  Britain  ; 
and  conditions  of  living — see  For- 
eign trade  and   civilization  ;    and 
individual    profit — see    Individual 
profit ;  and  prices — see  Prices  ;  and 
shipping — see  Shipping  industry 


Formation  of  nations,  2  (25),  12-21 

Frailties  of  man,  20,  209,  215,  299 

Free  imports — see  Free  Trade 

Free  markets — see  Markets 

Free  production,  the  right  of  every 
nation  to,  158-160,  308  et  seq.  ;  of 
wealth  and  its  assurance,  216-225, 
308  et  seq.',  and  labour — see  Labour; 
•and  Protection — see  Foreign  trade 
and  importance  of  markets  ;  and 
skilled  industries — see  Protection 

Free  Trade,  Britain's  prosperity 
under,  176,  177,  210,  232,  258,  259, 
267-270  ;  and  rights  of  small 
nationalities,  222-225,  236  et  seq., 
250,  251,  258  et  seq.,  268,  269, 
319;  and  profiteering,  224,  225; 
and  liberty,  224,  225,  266 ;  and 
civilization,  224,  225,  234,  258- 
270  ;  and  Protection,  224,  225, 
233-237.  244-254,  259  et  seq.,  271- 
273,  278  et  seq.  ;  and  price  of 
necessaries,  224,  259-261,  287  et 
seq.  ;  and  consumers,  224,  259-261, 
287  et  seq.  ;  and  materialism,  225, 
250,  251,  266  ;  and  international 
competition,  225,  236,  245-251, 
265-273,  277  et  seq.  ;  and  skilled 
industries,  225,  236,  245-251,  257 
et  seq.,  265-269,  277  et  seq.,  287, 
291  et  seq.  ',  drives  labour  into 
unskilled  industries,  239-243,  261, 
265-277,  287 ;  and  sweated  lab- 
our, 242,  266,  271-277 ;  prevents 
international  co-operation,  248- 
251  ;  and  the  '  Internationale/ 
248-251  ;  and  League  of  Nations, 
250,  251,  268,  269,  277  ;  universal, 
250,  251,  268,  269,  277  ;  origin 

.  and  effect  of,  255-270  ;  delusions 
of,  255-298 ;  and  national  interests, 

257  et  seq. — see  also  Foreign  trade 
and  national  well-being ;  and  buy- 
ing in  the  cheapest  market,  257  et 
seq.;  success  of,  257  et  seq.,  271  ;  and 
distribution  of  wealth,  257  et  seq., 
273-277,  287,  288  ;   ruined  British 
agriculture,  258,  259  ;   harmless  to 
Britain  in  nineteenth  century,  258, 
259,   267-270  ;    and  cheap  bread, 
258,  259,  295-298  ;    principles  of, 

258  et    seq.,    277-298  ;     due    to 
impotence  of  government,  259-261, 
266  ;    and  social  reformers,   260  ; 
and  producers'  monopoly,  260,  261 ; 
and  employers,  260-277  ;   benefits 
individuals  at  expense  of  nation, 

331 


THE   REAL   WEALTH   OF  NATIONS 


264  et  seq.,  271-298 ;  and  cost 
of  production,  265-269,  275-277, 
283  et  seq. ;  and  the  law  of  supply 
and  demand,  269,  270,  274-278  ; 
and  bankers,  271,  272  ;  and 
exporters,  271-277  ;  and  middle- 
men, 271-277;  fallacies  of,  271- 
298 ;  real  beneficiaries  of,  271- 
298 ;  axioms  of,  278-288  ;  and 
Germany,  279  j  and  unemploy- 
ment, 289,  292,  293  ;  and  export 
of  coal — see  Coal  ;  and  home 
prices — see  Labour  and  Free  Trade ; 
and  shipping  industry — see  Ship- 
ping ;  and  value  of  money — see 
Value  of  money ;  and  working 
classes — see  Labour  and  Free 
Trade 

Freedom,  of  individuals,  must  be 
restricted,  10,  156-158;  national, 
to  produce — see  Economic  liberty. 
See  also  Liberty 

Freights  and  export  of  coal,  284 


GAMBLING,  in  supply  of  necessaries, 
*54»  T55  >  in  money,  199 

Germany,  her  ability  to  pay  a  full 
indemnity,  86,  87 ;  and  Free 
Trade,  279 

Gold,  its  use  for  money,  74  ;  and 
notes,  74 

Goods,  and  services,  45,  60  et  seq., 
173,  178,  179  ;  competition  in  the 
sale  of,  141,  142  ;  are  paid  for  by 
goods,  1 60,  170-173,  178,  207-215, 
279,  280,  289  et  seq.  ;  international 
exchange  of  money  for,  193-206  ; 
value  of,  262  et  seq. 

Government,  science  of,  3  (31),  20, 
21,  170,  259-261,  294,  295,  300 
et  seq.  ;  and  supply  of  necessaries, 
20,  21,  56,  57,  165-178,  203-206; 
cost  of,  20,  69,  100-102,  137,  138, 
164-166,  218  ;  first  duty  of,  20, 
2I»  56>  57»  I65~I78»  203-206,  218, 
317,  321  ;  cities,  the  seats  of,  72, 
304  ;  civilization  necessitates,  100, 
299  et  seq.  ;  nationalization  and 
government  control,  151;  one  nation 
does  not  contribute  to  another's  cost 
of,  164-166,  246  ;  by  the  producers; 
237,  247-249,  293-295,  300-308, 
310 ;  and  foreigners,  246 ;  Free 
Trade  was  due  to  impotence  of, 
259-261,  266  ;  refusal  to  adopt 
Protection,  261  ;  a  new  system  of, 

332 


299-322  ;  of  the  world  by  middle* 
men,  300  et  seq.  ;  and  taxation — 
see  Taxation.  See  also  Force,  rule 
of 

Greed,  of  inferior  men,  9  ;  of  animals, 
20  ;  of  man  and  foreign  trade, 
209-215 


HALF-TIMERS  and  export  trade,  187 

Handlers  of  wealth — see  Middlemen 

Handling  goods,  cost  of,  62,  79  et  seq. 

Happiness,  and  skilled  industries, 
152-154 ;  and  wealth,  152-154, 
159,  1 60,  318,  321  ;  and  luxuries, 
159,  1 60 

Harvests,  economic  importance  of, 
23,  28,  155 

Health  and  agriculture,  155,  156, 
259,  319 

High  wages,  and  profits,  128-134 ; 
and  foreign  trade — see  Foreign 
trade ;  and  Protection — see  Wages  ; 
effect  of — see  Wages 

Home  market,  and  Protection — see 
Foreign  trade  and  the  importance 
of  markets;  competition  in — see 
Foreign  trade ;  monopoly  of  a 
nation — see  Markets 

Home  prices,  and  Free  Trade — see 
Labour  and  Free  Trade  ;  and  ex- 
port prices — see  Prices 

Home  production  or  imports,  207- 
215,  261,  264-267 

Home  trade  and  foreign  trade,  172- 
185,  258 

Human  race,  perpetuation  of,  i  (5), 
7,  26-28,  104-108 


IMPORT  duties,  231,  232,  291  ;  and 
the  national  value  of  industries, 
238-243  ;  and  the  consumer,  288- 
291  ;  cost  of  collecting,  232,  288  ; 
and  Tariff  Reformers,  225,  257- 
259,  270,  279,  289  et  seq. 

Importance  of  markets  and  inter- 
national competition,  207-215 

Importation  under  licence,  231,  232 

Importers  benefit  through  inter- 
national competition,  186-192, 
245-247,  264  et  seq. 

Imports,  balance  of  exports  over, 
69,  70,  113,  181-185,  280,  281  ; 
cost  of,  159 ;  home  production 
or,  207-215,  261,  264-267 ;  pro- 
hibition of,  224  et  seq.,  288  ;  and 


INDEX 


conditions  of  living — see  Foreign 
trade  and  civilization ;  and  in- 
dividual profit — see  Individual 
profit  and  national  interests  ;  and 
prices — see  Prices  and  foreign 
trade  ;  and  wealth  -  wage  —  see 
Foreign  trade  and  wages  ;  of  the 
products  of  skilled  labour — see 
Foreign  trade  and  skilled  in- 
dustries ;  of  the  products  of  un- 
skilled labour — see  Foreign  trade 
and  unskilled  labour ;  quality  of 
— see  Foreign  trade  and  skilled 
industries.  See  also  Foreign  trade 
Income  from  foreign  investments, 

183,  184,  198,  281 

Income  tax,  and  source  of  wealth, 
69,  137.  I38,  259,  304,  319  ;  and 
number  of  dependents,  105-107  ; 
and  conscription  of  capital,  137, 
138.  See  also  Taxation 
Independence,  national,  and  pro- 
duction of  necessaries,  154-160, 
165,  166,  179,  259  ;  and  shipping, 
179  ;  and  Free  Trade,  250,  251, 
258  et  seq.,  267-269,  277 ;  and 
Protection — see  Existence 
India,  competition  with,  214,  215, 

274-277 

Indirect  taxation,  100-102,  231 
Individual  existence,  civilization  and 

right  of,  13,  103-111 
Individual  liberty,  10,  156-158  ; 
and  national  prosperity,  156,  158, 
261  ;  to  buy  in  the  cheapest 
market,  218-225,  261,  266 
Individual  profit,  and  waste,  2  (22), 
63, 156-158  ;  and  national  interests, 
95,  114,  156-158,  207-215,  261- 
277 ;  and  national  capital,  113, 
114,  122-126,  186-188 — see  also 
Foreign  trade ;  and  increased 
consumption,  156-158;  and  foreign 
trade,  173-181,  186-192,  207-215, 
223-225,  245-247,  264  et  seq.,  285- 
288  ;  and  Free  Trade,  264  et  seq., 
271-298 
Individuals  and  cheap  prices,  63, 

145,  204-206,  219-225 
Inducement,  to  work,   24,   99,   100  ; 
to   become   skilled — see    Skill ;    to 
produce — see  Produce 
Industrial,    efficiency,    43  ;    fatigue, 
43-45  ;  war,  93,  138-140,  145-149, 
308  et  seq.  ;  machines,  production 
of,   112,   124,   174-177;     develop- 
ment and  coal,  113,  114;     supre- 


macy of  Britain,  176,  177,  232,  258, 
259,  267-270  ;  Council,  308  et  seq., 
318  ;  development  and  Free  Trade 
— see  Free  Trade  ;  peace — see  War 

Industries,  national  choice  of,  94, 
120,  i2i,  210,  223,  250,  251,  265- 
270,  278  et  seq.  ;  unproductive, 
119,  1 20 ;  a  nation's  well-being 
depends  upon  the  quality  of  its, 
152-160  ;  size  of  a  nation's  market 
and  skilled,  208-215  ,'  Protection 
graded  according  to  the  national 
value  of,  238-243  ;  and  civilization 
— see  Civilization  ;  national  right 
to  a  market  for — see  Markets ; 
national  value  of — see  National 
value  of  industries  ;  quality  of — 
see  Quality  of  industries  ;  skilled — 
see  Skilled  industries  ;  unskilled — 
see  Unskilled  labour.  See  also 
Foreign  trade  and  skilled  industries 

Industry,  and  agriculture,  217  et 
seq.,  259,  318,  319  ;  control  of,  312 

Inequality,  of  man,  2  (14),  2  (24), 
5-1 1,  1 6,  17,  24,  32,  33,  97,  99, 

141,  142,  234  ;  civilization  due  to, 
6,  9,  16,  24,  33,  97,  141,  142,  234, 
247-249,  293-295  ;   of  nations,  16, 
164-168 

Inequitable,  rate  of  exchange  equi- 
valent to  war,  202  ;  distribution 
of  wealth  should  not  hinder  its  pro- 
duction, 261 

Inferior  men,  greed  of,  9 ;  wealth 
not  due  to  labour  of,  9,  41,  99, 
293-295  ;  rule  by,  45,  225,  293-295, 
306,  310-312 

Inferior  races,  economic  subjection 
of,  163 

Inflated,  prices,  84 ;  currency  and 
effect  on  rate  of  exchange,  201,  202 

Insolvency,  national,  198 

Insurance,  national,  and  shipping, 1 79; 
and  agriculture,  154-160,  165,  166, 
179,  259,  319  ;  and  Protection,  236 

Intercourse,  civilization  due  to, 
between  unequal  men,  6,  7,  141, 

142,  161-168,  234  ;  civilization  and 
international,    141,    142,    161-168, 
244-251  ;    co-operation  and  inter- 
national,  192,  234,  244-251,  265- 
270,   319  ;    not  hindered  by  Pro- 
tection, 234,  243-251,  319 

Interest,  72,  130-140,  183,  184  ;  and 
wages,  130-140  ;  and  living  wage, 
132 ;  from  foreign  investments, 
183,  184 

333 


THE  REAL  WEALTH  OF  NATIONS 


Interference,  with  production,  168, 
1 88,  216-225  ;  international,  168, 
216-225 

International,  economics,  17,  121, 
161-254  ;  currency,  74,  193-206  ; 
subdivision  of  labour,  or  inter- 
national trade,  163,  169-185,  193  ; 
interference,  168,  216-225 ;  co- 
operation, 186  etseq.,  234,  243-251, 
265-270,  317,  319;  exchange  of 
money,  193-206 ;  capitalists  and 
national  interests,  197-206  ;  credit, 
197-200  ;  finance,  197-206  ;  war 
not  due  to  Protection,  243,  250, 
251,  319  ;  exchange  of  labour — see 
Foreign  trade  ;  middlemen  and  ex- 
ploitation of  producers — see  For- 
eign trade  and  middlemen  ;  pro- 
fiteering— see  Profiteering  ;  rela- 
tionships— see  Foreign  trade  and 
civilization 

International  competition,  who  bene- 
fits by,  186-192,  245-247,  264 
et  seq.  ;  restricted  by  Protection, 
217,  222-225,  229-237,  242-245, 
259-277,  283,  284,  319  ;  and  eight- 
hour  day,  248-251  ;  and  the  '  In- 
ternationale,' 248-251  ;  and  effici- 
ency, 268,  269  ;  and  Free  Trade — 
see  Free  Trade ;  of  labour — see 
Foreign  Trade  and  labour-hours  ; 
and  Rate  of  exchange — see  Foreign 
trade  ;  restriction  of — see  Foreign 
trade  ;  and  skilled  industries — see 
Foreign  trade ;  and  standard  of 
living — see  Foreign  trade  and 
civilization  ;  and  war — see  Foreign 
trade  and  competition 

'  Internationale,'  a  real,  244-254 ; 
and  middlemen,  247-251  ;  and 
wealth-distribution,  247-251  ;  and 
wealth-production,  247-251  ;  and 
capitalists,  248-251  ;  and  com- 
petition, 248-251  ;  and  co-opera- 
tion, 248-251  ;  and  Protection, 
248-251 ;  and  universal  Free  Trade, 
248-251  ;  and  civil  war,  249-251 

Internationalists,  1 6, 17, 19,  247-249  ; 
and  civilization,  165-168,  247-249 

Internationalization  of  wealth,  218 

Intrinsic  value,  i  (6),  2  (18),  2  (19), 
30  et  seq.  ;  unit  of,  i  (7),  31  et  seq.  ; 
and  exchange  value,  2  (19),  48-50, 
53  et  seq.,  317;  independent  of 
cost,  27  et  seq.,  49,  52,  53,  58,  124, 
162,  163,  262  et  seq.  ;  definition  of, 
30  ;  and  skill,  33,  49,  97-100  ;  of 

334 


coal,  34,  114,   122-126;    and  eco- 
nomic wealth,   40,   57,    321  ;    and 
price,  48-50,  53  et  seq. ;  independent 
of  labour,  49  et  seq.,  58,  124  ;  and 
profit,  52,  53  ;  and  luxuries,  53-56 
importance  of,  53-58,  262  et  seq. 
and  foreign  trade,  170-181,    209 
and  cost  of  exports — see   Foreign 
trade  and  cost  of  production.     See 
also  Unit  of  value 

Introduction,  of  money,  73-87 ;  of 
employers,  127-140 

Inventions,  due  to  brains  and  skill, 
32, 176 ;  and  competition,  145  ;  and 
foreign  trade,  176,  177,  210 

Inventors,  33  ;  reward  of,  96 ;  and 
wealth-production,  96,  117,  176, 
177,  210 

Investments,  183-185,  198,  238-243, 
281  ;  interest  from,  183,  184;  home 
versus  foreign,  183,  184,  198,  281 

Iron  ore,  122-126  ;  export  of,  187, 
1 88 

Irreplaceable  raw  material — see  Raw 
material 


JAPAN,  competition  with,   191,   192, 

274-277 

Jevons,  on  value,  267 
Jewels,  value  of,  15,  38,  54,  263,  264 
'Joy'   wealth,   40,  53,  321  ;   cannot 

be  measured,  53  et  seq.,  262  et  seq. 

LABOUR,  and  wealth-production,  2 
(13).  9,  23-59,  88-94,  99,  103-126, 
141,  142,  225-237,  249,  257  et  seq., 
293-295,  320  ;  and  necessaries  of 
life,  31"  et  seq.,  90-109  ;  and  value 
produced,  31-41,  48,  49,  58,  115- 
126,  263,  264  ;  exchange  of  goods 
for,  45,  60  et  seq.  ;  and  profits.  45, 
97,  128-134,  242,  266  ;  and  middle- 
men, 62  et  seq.,  92,  106,  117-119, 
140,  286,  294,  295,  302  ;  and 
prices,  63,  141-146,  190,  204-206, 
209,  216-225,  258,  259,  277  ;  and 
capital,  72,  127-140,  257  et  seq.  ; 
and  value  of  money,  75-87,  193- 
206,  228  ;  combination  of,  88,  89  ; 
and  wages,  88-129,  141,  142,  220- 
229  ;  and  skilled  industries,  103- 
126,  135-140,  152-154,  216,  220- 
225,  238-243,  309,  320,  321  ;  and 
unpleasant  conditions,  108-111, 
113,  114,  308-310;  and  strikes, 


INDEX 


109,  138-140,  158,  227-229,  310, 

311  ;  of  workmen  and  employers, 
128-131  ;  international  trade  and 
the  quality  of,  176-206,  223-225, 
246-251  ;  and  rate  of  exchange, 
193-206 ;  displaced  Irom  one 
industry  is  absorbed  by  another, 

223,  242,   283  ;    and  Free  Trade, 

224,  225,   232-236,   239-243,   250, 
251,   257  et  seq.,   264-277,   285  et 
seq.  ;    leaders,  240,  247-251,  294  ; 
and  '  Internationale,'  247-251  ;  and 
measurement  of  wealth,  256,  257  ; 
demoralization  of,  311  ;   and  civi- 
lization— see   Foreign     trade     and 
civilization  ;      and    competition — 
see  Labour -hours  ;    and  employers 
• — see  Employers  ;  and  exports — see 
Foreign    trade    and   labour-hours ; 
and    imports — see     Foreign    trade 
and  civilization  ;  and  international 
competition — see  Foreign  trade  and 
labour-hours  ;    and  national  value 
of  industries — see   National   value 
of    industries  ;     and    Protection — 
see     Protection     and     skilled     in- 
dustries ;      and     unemployment — 
see   Unemployment ;    and   univer- 
sal   Free    Trade — see   Labour  and 
Free     Trade  ;      and      waste  —  see 
Waste    and     labour-hours  ;     buy- 
ing    in      the      cheapest      market 
and  .the    price    of — see     Foreign 
trade  and  buying  in  the  cheapest 
market ;     discontent   of — see   Dis- 
content ;     exchange    of — see    Ex- 
change  of    labour ;     exports   and 
unskilled — see   Foreign   trade   and 
unskilled     labour  ;      international 
exchange   and  the  quality  of — see 
Foreign  trade    and    skilled   indus- 
tries ;    skilled — see  Skilled  labour  ; 
unskilled — see    Unskilled     labour  ; 
sweated — see  Sweated  labour 

Labour-hours,  38,  75  et  seq.,  228,  309 
et  seq.,  318  ;  and  competition,  141, 
142,  145,  148,  214,  215,  244-251, 
274,  277 ;  and  efficiency,  160, 
248-251  ;  and  world-cost  of  pro- 
duction, 163,  261-269  ;  and  balance 
of  exports  over  imports,  182-185  ; 
and  rate  of  exchange,  193-206 ; 
and  civilization,  220-225,  234, 
258-270  ;  and  foreign  trade — see 
Foreign  trade  ;  and  Free  Trade — 
see  Free  Trade  and  civilization  ; 
and  Protection — see  Protection  and 


skilled  industries — see  Labour  and 
skilled  industries ;  and  value  of 
money — see  Labour;  and  waste — 
see  Waste;  exchange  of — see  Ex- 
change 

Labour-saving,  value  of,  98,  240 

Lancashire  and  export  trade,  187, 
241 

Land,  wealth  derived  from,  301,  302  ; 
tenure,  313,  314 

Law  of  supply  and  demand,  51  et 
seq.,  93,  139,  140,  150,  224,  230, 
231,  256,  257 ;  and  value,  51  et 
seq.,  60  et  seq.,  106,  225-227,  249 
et  seq.,  289-295  ;  and  economists, 
53  et  seq.,  106,  253  et  seq.,  293- 
295 ;  and  cost,  55-59,  253,  254  ; 
and  prices,  55,  56,  84,  106,  154- 
158,  170,  224-227,  254,  274  ;  and 
shortage  of  necessaries,  55,  56, 
84,  106,  154-158,  170,  224-227, 
254,  274  ;  and  robbery,  56,  106, 

253,  254 — see    also    Force ;     and 
civilization,  56,  106,  225,  249,  253, 

254,  305  ;   and  wealth-production, 
56,   114,   115,  256,  257,   311  ;  and 
war,  84,  170  ;  and  skilled  industries, 
109,    no,   226,   227,   239-243,    289 
et  seq.  ;  and  Bolshevism,  109,  no, 
247-251,    294,    295  ;    and    wages, 
109,   no,   120,  226,  227,   239-243, 
309 ;    and    coal,     114,     115  ;    and 
international    trade,    71-181,    191, 
256 ;   and  rate  of  exchange,    202 ; 
and  profiteering,  226,  227 ;  and  Karl 
Marx,    249  ;    invention    of,    256  ; 
and    Tariff    Reformers,     257-259, 
270,    279,    289   et   seq.  ;    and    Free 
Trade,    269,    270,    274-278  ;    and 
liberty — see  Liberty  ;  and  poverty 
— see  Poverty 

Law  of  the  survival  of  the  fittest, 
i  (3).  9,  20,  143,  252,  294,  305  ; 
is  the  animal  law  of  force,  20  ; 
and  competition,  143  ;  and  over- 
population, 252 

Law  of  value,  and  civilization,  227, 
249,  293-295.  See  also  Value 

Laws,  of  exchange,  15,  20,  46  et  seq.  ; 
of  international  Economics,  17, 
121,  161-254  ;  which  govern  the 
wealth  of  nations,  20  ;  patent,  50, 
96  ;  of  wealth-distribution,  96,  100 

Laws  of  Economics,  and  religion,  252- 
254;  and  civilization,  249-253  ;  and 
war,  321  ;  and  robbery — see  Force. 
See  also  Law  of  supply  and  demand 

335 


THE  REAL  WEALTH   OF  NATIONS 


Lawyers,  fortunes  of,  70,  300-302  ; 
their  position  in  the  State,  305 

Leaders  of  labour,  240,  247-251,  294  ; 
and  Protection  for  skilled  indus- 
tries, 242 

Leadership,  and  combination,  127, 
128  ;  faculty  for,  128  ;  reward  of, 
128-134  ;  and  skill,  128,  129,  293- 
295 ;  and  civilization,  128,  293- 
295,  299  et  seq. 

League  of  Nations,  101,  166,  250, 
268,  269,  277,  319  ;  and  Protection 
of  skilled  industries,  243,  251,  269, 
319 ;  and  economic  principles, 
250,  251  ;  and  economic  war, 
250,  251,  268,  269,  277;  and 
universal  Free  Trade,  250,  251, 
268,  269,  277 

Leisure,  first  form  of  wealth,  i  (15), 
24,  28,  36,  37,  77  ;  how  measured, 
28 ;  allows  the  production  of 
wealth,  36  ;  and  luxuries,  37,  79 
et  seq.,  153,  154,  159,  160-168 ; 
and  skill,  47 ;  and  value  of  money. 
77  et  seq.;  and  commodities,  112, 
248 ;  and  skilled  industries,  152- 
154 ;  and  waste,  156-158,  248, 
315  et  seq. 

Liberty,  5-11,  106,  120,  121,  142, 
156-158,  163,  216-225,  25J»  261, 
266,  315  ;  and  civilization,  5-11, 
141-146,  158,  251,  315  ;  and  law 
of  supply  and  demand,  56,  106, 
120,  253,  254 ;  to  buy  in  the 
cheapest  market,  120,  218-227, 
257-261,  268,  269,  277  ;  and 
over-production,  unemployment, 
poverty,  120,  156-158,  303  et  seq.  ', 
and  Free  Trade,  224,  225,  266 ; 
and  emigration,  251  ;  and  wages — 
see  Law  of  supply  and  demand 
and  wages  ;  economic — see  Eco- 
nomic liberty  ;  national  liberty  to 
produce — see  Economic  liberty 

Licences  to  import,  231,  232 

Life,  support  of  human,  13,  103-111, 
263,  264;  of  an  individual,  17; 
best  things  in,  153,  154 

Limit,  of  taxation,  101,  138 ;  of 
economic  well-being — see  Economic 
well-being  of  a  nation 

Living  wage,  103-111,  120,  265,  309 
et  seq.  ;  and  necessaries  of  life, 
104-111  ;  and  national  value  of 
industries,  115-126,  216;  and 
sweating,  120  ;  and  interest,  132  ; 
and  rate  of  exchange,  195-206 ; 


and  export  of  the  products  of 
unskilled  labour,  195-206,  210, 
214,  215 

Low  wages,  and  profits,  128-134  ; 
and  cheap  prices — see  Prices  and 
wages  ;  and  foreign  trade — see 
Foreign  trade 

Luxuries,  availability  of,  2(15),  36-39, 
68,  315  et  seq.  ;  the  essential  dis- 
tinction of  necessaries  from,  26, 
36-41,  53-57,  68,  255,  256,  262 
et  seq. ;  definition  of,  36-39 ;  of, 
less  importance  than  necessaries, 
37.  53.  56,  57.  165,  166  ;  cost  of, 
37.  38,  54-55.  8if  159,  169,  171- 
I74>  r77  '•  surplus  of,  38  ;  afford 
gratification,  39  ;  may  have  value 
as  necessaries,  39  ;  and  economists, 
53  et  seq.  ;  and  intrinsic  value, 
53-56 ;  price  of,  53-55,  80  et  seq.  ; 
exchange  value  of,  53-55,  69,  80 
et  seq.  ;  desire  for,  53  et  seq.,  159, 
1 60 ;  and  value  of  money,  79 
et  seq.  ;  raw  material  and  the 
production  of,  126 ;  conscription 
of,  137  ;  waste  of,  157,  315  ;  and 
happiness,  159,  160 ;  cost  of 
imported,  159,  169-174,  177  ;  and 
education,  160  ;  and  international 
trade — see  Foreign  trade ;  and 
leisure — see  Leisure  ;  exchange  of 
— see  Exchange  of  luxuries ; 
production  of — see  Production  of 
luxuries  ;  value  of — see  Value  of 
luxuries 

Luxury  value — see  Value  of  luxuries 


MACHINES,  essential  difference  from 
man,  43  ;  their  use  necessitates 
subdivision  of  labour,  88,  89 ; 
the  expression  of  brains,  112,  124, 
174-177 

Majority,  power  of  the,  n,  247-249, 

293-295 

Man,  can  exist  without  wealth,  i  (i), 
13 ;  necessaries  of  the  average, 
i  (7),  25  et  seq.,  39,  256;  in- 
equality of,  2  (14),  2  (24),  5-1 1,  1 6, 
24,  33,  97,  141,  142,  234  ;  evolution 
of,  2  (24),  5-1 1,  15;  his  willingness 
to  share,  7,  19,  97  ;  can  support 
a  greater  population,  8  ;  natural 
instinct  of,  8,  20  ;  a  producer  of 
wealth,  8,  24,  97  ;  his  desire  to  ex- 
press himself,  8,  162  ;  brotherhood 
of,  1 8 ;  will  not  work  for  loafers. 


33$ 


INDEX 


19  ;  must  be  able  to  produce  his 
necessaries,  20  et  seq.,  36,  56, 
57,  256,  262  ;  frailties  of,  20,  209- 
215,  299  ;  his  inducement  to  im- 
prove himself,  24,  98-100  ;  value 
of  wealth  to,  30 ;  his  unequal 
production,  32,  97 ;  skilled,  32, 
97  et  seq.  ;  unskilled,  32,  97  et  seq.  ; 
his  essential  difference  from  a 
machine,  43  ;  his  unlimited  power 
of  accumulating  knowledge,  44; 
his  unequal  spending,  97 ;  his 
unequal  use  of  opportunities,  99  ; 
national  value  of,  104  et  seq., 
240  ;  his  claim  to  production — see 
Producers  of  wealth  must  be  re- 
warded. See  also  Inequality  of  man 

Man-capital,  2  (12),  127 ;  use  of, 
2  (12).  See  also  Capital 

Man- wealth,  i  (3),  i  (4),  i  (u),  12-15; 
first  form  of,  i  (4),  24,  28,  36,  77  ; 
distinction  from  natural  wealth 
— see  Natural  capital ;  its  pro- 
duction due  to  skill  or  brains — see 
Skill.  See  also  Wealth 

Manual  labour,  the  leaders  of,  240, 
247-251,  294;  and  the  '  Interna- 
tionale,' 247-251  ;  and  class-war 
— see  War  ;  and  Free  Trade — see 
Labour  ;  and  middlemen — see 
Labour  ;  reward  of — see  Skill 

Manual  skill,  subdivision  of  labour 
essential  for,  42-45 

Manufacturers,  competition  of,  143, 
144,  174,  186-192,  202,  203,  207- 
215,  265-267,  278  et  seq. ;  and  Free 
Trade,  260-277  >  and  Protection — 
see  Protection 

Market,  surplus  production  requires 
a,  120,  160,  211  ;  the  size  of  a 
nation's,  159,  160,  181-185,  207- 
215  ;  and  money,  199 ;  efficient 
production  depends  upon  a,  207- 
225,  239-243,  265-277 ;  and 
capital,  213  ;  buying  in  the 
cheapest,  218-227,  257-261,  268, 

269,  277 ;    skilled   industries   and 
the  reservation  of  the  home — see 
Protection  and  skilled  industries 

Markets,  nation's  right  to  its  own, 
211-215,  222-225,  25°»  251'  265- 

270,  312  ;    and    Free    Trade — see 
Free  Trade  and  Protection  ;  inter- 
national    competition     and     the 
importance  of — see  Foreign  trade 
and  importance  of  markets  ;  neces- 
sary    for     efficient    production — 


see  Market;  neutral — see  Neutral) 
protection  of — see  Foreign  trade 
and  importance  of  markets 

Married  men,  wages  of,  104-107  ; 
competition  with  unmarried,  104- 
107 

Marshall,  Prof.  A.,  249 

Marx,  Karl,  249 

Material  wealth,  8,  16,  152-168 ; 
due  to  men  of  science,  8 ;  and 
well-being,  12,  13,  20,  152-168, 
220-225  ;  and  standard  of  living, 
152-168,  220-225 

Materialism  and  Free  Trade,  225, 
250,  251,  266 

Measurement  of  wealth,  23-35,  4°» 
58,  162,  256,  257,  262  et  seq.,  321  ; 
depends  on  distinction  of  neces- 
saries from  luxuries,  40,  262  et  seq. 

Men,  wages  of  married  and  single, 
104-107 ;  wages  of  women  and, 
1 06,  107  ;  and  masters — see  Em- 
ployers ;  skilled — see  Skill 

Merchants — see  Middlemen 

Middlemen,  60  et  seq.,  84,  106  ;  cost 
of,  61  et  seq.,  79  et  seq.  ;  efficiency 
of,  61-63,  88,  89,  147,  304  ;  and 
prices,  63,  1 06,  140,  286  ;  capital 
of,  69-72,  127-140 ;  benefit  by 
waste,  69,  157,  158,  320 ;  con- 
gregate in  cities,  72,  304 ;  and 
strikes,  140 ;  and  co-operation, 
146-149 ;  exploitation  of  pro- 
ducers by  international,  196-206  ; 
benefit  by  variable  rate  of  ex- 
change, 201-206 ;  and  the  '  Inter- 
nationale,' 247-251  ;  benefit  by 
Free  Trade,  271-277  ;  world  con- 
trolled by,  300  et  seq.  ;  and  labour 
— see  Labour  ;  and  value  of  money 
— see  Value  of  money  ;  and  wages 
— see  Wages  ;  and  wealth-produc- 
tion— see  Producers  of  wealth ; 
benefit  by  all  foreign  trade — see 
Foreign  trade ;  benefit  by  com 
petition — see  Competition  ;  depen 
dent  on  producers — see  Producers 
of  wealth  ;  profits  of — see  Profits  ; 
skill  of — see  Skill ;  their  essential 
difference  from  producers — see  Pro- 
ducers of  wealth  ;  their  share  of 
taxation — see  Taxation  ;  toleration 
of  unnecessary — see  Restriction 

Mill,  J.  S.,  259 

Miners,  wages  of,  108,  109,  113,  114, 
308-310  ;  not  producers  of  wealth, 
113,  114 ;  and  the  export  of  coal, 

337 


THE  REAL  WEALTH  OF  NATIONS 


187,  1 88  ;  and  the  '  Internationale,' 
248-251  ;  power  of,  310 ;  reduc- 
tion in  number  of,  320 

Minimum  wage  and  production,  311 

Money,  essential  for  exchange,  73  ; 
various  sorts  of,  73,  74 ;  and 
wealth,  73-93  ;  necessity  for,  73, 
88,  89,  193  ;  the  introduction  of, 
73-87,  193-206 ;  and  gold,  74 ; 
and  notes,  74 ;  amount  of,  in 
circulation,  75  et  seq.,  137,  138, 
201,  202  ;  and  goods,  75  et  seq., 
155,  172,  173,  193-206,  228; 
waste  of,  79  et  seq.,  157,  315  ; 
-lenders,  87,  197-200 ;  '  dirty,' 
108-114,  309,  310;  conscription 
of,  127-138 ;  international  trade 
and  the  introduction  of,  193-206  ; 
equitable  exchange  of,  193-206  ; 
international  exchange  of  goods 
and,  193-206  ;  equality  of  labour- 
hours  and  foreign,  193-206 ;  -len- 
ders and  credit,  197-200  ;  market, 
199 ;  value  of — see  Value  of  money ; 
and  wages — see  Value  of  money  and 
wages 

Monopolies,  68,  143-149,  164-168, 
260,  261,  278,  279 ;  and  co- 
operation, 143-149 ;  and  prices, 
143,  149,  226-237 »  and  profits, 
143-149,  164-168,  226  et  seq., 
260,  278 ;  and  distribution  of 
wealth,  144-149,  226-237,  312  > 
and  profit-sharing,  148,  149,  312  ; 
and  rate  of  exchange,  204 

Monopoly,  of  skilled  industries  not 
permissible,  164-168,  278,  279  ; 
skilled  industries  and  England's, 
259 ;  of  producers  and  Free 
Trade,  260,  261  ;  national — see 
National ;  of  a  nation  to  its  own 
market — see  Markets 

Moral  development,  17,  152-154,  160 


NAPOLEON,  5,  12,  17,  65,  66,  273 
Nation,  its  claim  to  its  production, 
2  (27),  169-185  ;  what  it  consists 
of,  15,  1 8,  31  ;  its  relation  to  the 
world,  15,  18,  20,  162-168,  212,  236, 
250,  251  ;  sanctity  of  a,  15,  20, 
212,  236 ;  necessaries  of  life  of 
a,  20,  154-160;  size  of  its  market, 
159,  1 60,  181-185,  207-215  ;  its 
right  to  its  own  market — see  Mar- 
kets ;  wealth  of  a — see  National 
well-being 


National,  Economics,  23-160 ;  cost 
of  production,  67,  121-126,  151- 
183,  228,  229,  265,  278  et  seq., 
290,  291 ;  capital,  113, 114, 122-126, 
186-188  ;  monopoly,  164-168,  278, 
279,  312  ;  credit,  197-200 ;  in- 
solvency, 198 ;  financiers,  neces- 
sity for,  206 ;  loss  through  for- 
eign trade — see  Foreign  trade  and 
national  well-being 

National  interests,  and  bankers, 
198 ;  and  international  capital- 
ists, 197-206,  280  et  seq.,  290  et  seq.  ; 
and  Free  Trade,  257  et  seq. ;  and 
foreign  trade — see  Foreign  trade  and 
national  well-being  ;  and  the  in- 
dividual— see  Individual  profit  ; 
and  the  reservation  of  a  market 
— see  Markets.  See  also  National 
well-being 

National  security  —  see  Independ- 
ence, national 

National  value  of  industries,  103- 
126,  135-140,  152-160,  207-216, 
224,  225,  238-243,  250,  251,  257, 
258,  268,  269,  278  et  seq.,  318  ; 
and  raw  material  consumed,  113, 
114,  121-126,  265  ;  and  living 
wage,  115-126,  216;  and  Tariff 
Reformers,  225,  257-259,  270,  289 
et  seq.  ;  Protection  graded  accord- 
ing to  the,  238-243  ;  and  foreign 
trade — see  Foreign  trade  and 
skilled  industries  ;  and  Free  Trade 
— see  Free  Trade  and  skilled  in- 
dustries 

National  wealth  -  production,  and 
balance  of  exports  over  imports, 
113,  181-185,  280-282,  290;  and 
employers — see  Employers  ;  and 
export  of  coal — see  Coal ;  and 
foreign  investments — see  Foreign 
investments  ;  and  Free  Trade — 
see  Free  Trade  ;  and  markets — 
see  Market ;  and  Protection — see 
Protection  ;  and  skilled  industries 
— see  Skilled  industries  ;  and  Tariff 
Reform — see  Tariff  Reformers ;  and 
waste — see  Waste 

National  well-being,  13,  17,  19,  20,  31, 
135-140,  152-168,  179,  181-192, 
198,  207,  212-215,  220-229,  240, 
245-247,  257  et  seq.,  280  et  seq., 
307,  321  ;  and  balance  of  exports 
over  imports,  113,  182,  183,  280, 
281,  290 ;  depends  upon  the 
quality  of  industries,  125, 152-160, 


338 


INDEX 


216,  307;  and  education,  153,  154, 
1 60,  240  ;  and  cheap  prices,  204- 
206,  219-225  ;  and  credit — see 
Credit ;  and  denial  of  economic 
liberty — see  Individual  profit ; 
and  foreign  trade — see  Foreign 
trade;  and  Free  Trade — see  Free 
Trade  ;  and  Protection — see  Pro- 
tection and  skilled  industries ; 
and  waste — see  Waste 

Nationality,  2  (25),  2  (26),  10-21  ; 
due  to  Nature,  2  (25)  ;  inevitable, 
2  (26)  ;  economic  effect  of,  15-20, 
250,  251  5  and  class -war,  249-251  ; 
and  Protection — see  Protection 

Nationalization,  or  co-operation,  149- 
151,  320 ;  and  distribution  of 
wealth,  149-151  ;  and  efficiency, 
149-151,  218,  248,  313,  320  ;  and 
equality,  150  ;  and  'the  law  of 
supply  and  demand,  150 ;  of 
railways  and  coal-mines,  150,  308 
et  seq.,  320  ;  of  raw  material,  150, 
151,  218,  248,  308  et  seq.  •  of 
profits — see  Profits 

Nations,  formation  of,  2  (25),  10-21  ; 
inequality  of,  16,  164-168  ;  tran- 
siency of,  17  ;  competition  of 
small  and  large,  212,  236  et  seq., 
250,  251,  268,  269 ;  Protection 
and  the  sanctity  of,  212,  236 ; 
should  produce  that  for  which 
they  are  best  suited,  278  et  seq.  ; 
economic  rights  of,  and  inviola- 
bility of — see  Existence  ;  may  not 
exploit  others — see  Profiteering  ; 
Universal  Free  Trade  and  League 
of — see  League  of  ;  wealth  of — see 
National  well-being 

Natural  capital,  i  (2),  14,  15,  23,  24, 
34,  95,  122-127,  179-181,  186-188, 
214,  321  ;  belongs  to  no  in- 
dividual, i  (2),  i  (3),  15,  24,  95  f 
distinction  between  man -capital 
and,  i  (2),  i  (3),  14,  15,  23.  24,  34, 
95,  186-188  ;  civilization  not  due 
to  availability  of,  23,  24,  95  ;  in- 
trinsic value  of,  34,  114,  122- 
126;  and  export  trade — see  Export 
of 

Natural  wealth — see  Natural  capital 

Nature,  its  influence  upon  man,  2  (25), 
5,  8  ;  compels  man  to  work,  8  ; 
and  the  production  of  wealth,  in, 
122-126,  162-168  ;  beauties  of, 
153,  154  ;  and  international  com- 
petition, 268  269 


Necessaries  of  life,  i  (5),  7,  25-28  ; 
of  the  average  man,  i  (7),  25-27, 
39,  256 ;  consumption  of,  i  (8), 
28,  31,  154,  155,  315  et  seq. ;  avail- 
ability of,  2  (15),  36-39,  68  }  and 
the  poor,  2  (16),  53-57,  104-107, 
I54.  J55»  31?  ;  exchange  of,  2  (18), 
46-55,  169-178,  261  et  seq.,  317; 
importance  of,  20,  21,  27.  28,  56, 
57,  165-178,  203-206  ;  of  a  nation, 
20,  154-160 ;  definition  of,  26 ; 
a  tangible  quantity,  27  ;  primitive 
man  produced  only,  36 ;  price  of, 
39,  53-57.  75  *  seq.,  105-107,  139. 
194-206,  226,  227,  317,  319; 
support  human  life,  39  ;  and  the 
value  of  money,  75  et  seq.,  194- 
206,  319  j  and  the  living  wage, 
104-111;  gambling  in,  154,  155; 
Protection  for  the  producers  of, 
210  et  feq.t  217  et  seq.,  259,  308  et 
seq.,  319 ;  Free  Trade  and  the 
price  of,  224,  259-261,  287  et  seq.  ; 
and  strikes,  310 ;  control  of 
prices  of — see  Control  of  j  dis- 
tinction of  luxuries  from — see 
Luxuries ;  government  and  the 
supply  of — see  Government ;  and 
foreign  trade — see  Foreign  trade  ; 
and  labour — see  Labour  ;  and  Jaw 
of  supply  and  demand — see  Law 
of ;  man  must  first  produce  his 
— see  Man  ;  production  of — see 
Production  of  ;  and  Protection — 
see  Protection  and  agriculture ; 
shortage  of — see  Shortage  ;  skill 
and  the  production  of — see  Skill  ; 
surplus  of — see  Surplus  ;  value  of 
— see  Value  of;  waste  of — see 
Waste 

'  Necessary  '  value,  40,  321 

Necessity  for,  handlers  of  wealth 
and  their  essential  difference  from 
producers,  60-72 ;  wages  and  their 
relation  to  prices,  88-94 

Neutral  markets,  Protection  and 
competition  in,  229,  230,  283,  284 

New,  civilization  and  education,  312, 
313  ;  system  of  government,  299- 
322 


OBLIGATIONS,  to  dependents,  104- 
107  ;  skilled  workers'  social,  106- 
in,  3075  of  employers  and 
capital  to  labour,  133 

Opportunity,  unequal  seizure  of,  99 

339 


THE  REAL  WEALTH   OF  NATIONS 


Organization  and  wealth-production, 
117 

Organizers,  skill  of,  98-100 

Origin  and  effect  of  Free  Trade,  255- 
270 

Out-of-work  pay,  158,  310 

Output,  restriction  of,  155,  284,  310, 
311  ;  and  co-operation — see  Co- 
operation. See  also  Production 
of  wealth 

Over-population,  165,  252 

Over-production,  51,  56,  147,  154- 
158,  242,  289,  311  ;  of  necessaries, 


PAPER  money,  74,  82 

Patent  laws,  50,  96 

Peace,  industrial,  93,  138-140,  145- 
149,  154-158,  308  et  seq.i  and  the 
'  Internationale,'  249-251  :  and 
international  trade — see  Foreign 
trade  and  war  ;  Protection  essential 
for — see  Protection  and  economic 
war 

Pearls,  value  of,  38,  54,  263,  264 

Peel,  Sir  Robert,  259 

Pensions,  provision  of  adequate,  317, 
321 

Piece-work  rates,  108 

Pleasure,  value  of,  36-41,  53-57, 
262  et  seq. 

Political  economy,  and  Bolshevism, 
225,  247-251,  293-295.  See  also 
Economy 

Politicians,  and  the  '  Internationale,' 
247-251  ;  and  Free  Trade — see 
Economy,  political 

Poor,  necessaries  of  the,  53,  104-107, 
*54.  T55»  31? '  an(i  international 
competition,  186-192  ;  re-housing 
of  the,  313  ;  rich  nations  and — see 
Rich  ;  their  claim  upon  the  rich — 
see  Rich 

Population,  maintenance  of,  i  (5), 
26-28,  104-108,  259  ;  and  capital, 
134 ;  and  wealth,  152-160,  320, 
321  ;  and  production,  152-160, 
208-215:  agriculture  and  a  healthy, 
*55>  J56»  259-  3*9  •  problem  of 
over-,  165,  252  ;  and  international 
competition,  212,  236  et  seq.,  250, 
251,  268.  269 ;  and  underselling, 
250,  251,  268,  269 

Potatoes,  value  of,  32,  39,  46-60,  264 

Potential  wealth,  13,  14,  34,  57 

Poverty,    and    law    of    supply    and 

340 


demand,  53,  104-106,  120,  154, 
155,  249,  303  et  seq.,  317  ;  and 
competition,  143  ;  and  crime, 
144;  and  liberty,  156-158,  303; 
of  nations,  247  ;  and  distribution 
of  wealth,  303  et  seq.  ;  and 
international  trade — see  Foreign 
trade  and  national  well-being ; 
and  production — see  Production 
of  wealth  and  standard  of  living  ; 
and  unemployment — see  Unemploy- 
ment and  waste — see  Waste 
Power,  coal,  water,  and  oil,  113  ; 

of  miners,  310 

Price,  and  value,  2  (19),  49-59,  115, 
171-181,  210,  227,  254,  262  et  seq.  ; 
definition  of,  46-52  ;  and  demand, 
46-55,   69  ;    =  cost    +  profit,   52  ; 
cost,    demand,  and    profit,    52-55, 
69,   80  et  seq.      and  cost  of    pro- 
duction,   52-59,    69,    88-94,     T4°- 
146,   193,  204-206,  209,  2ii,   216- 
225,     277,     295-298  ;      =  intrinsic 
value   -j-  demand   value,    52,    55 
and    fashion,     53-55,    80    et    seq. 
of  luxuries,   53-55,  69,  80  et  seq. 
of  the  best  things  in  life,  153,  154 
of    goods    and    labour — see     Price 
and  cost  of  production 
Price     of     necessaries,      should      be 
controlled,    53-56,    226,    227,    317, 
319 ;   and   Free   Trade,    224,    259- 
261,  287  et  seq.  ;  and  Protection — • 
see    Protection     and     prices.     See 
also  Necessaries  of  life 
Prices,  and  production,  88-94,    I4I~ 
146,   204-206,    209,   211,    216-225, 
236,    273-277,    286    et    seq.  ;    and 
their    relation    to    wages,     88-94, 
115,    141-151,    190,   202-206,    209, 
216-229,    257   et   seq.,  277,   285    et 
seq.,  303;  and  taxation,   102,   138; 
and   foreign   trade,    112,    160-181, 
186-237,    248-251,    254-261,    265- 
277,  282,  285  et  seq.;   and  cost  of 
employers,     141,     142,     223  ;    and 
monopolies,     143-149,      226-237  ; 
and    consumption,    157-162 ;    low 
export,    187,    189,    196,    209,    2 TO, 
216,  271,  272  ;  and  cheap  imports, 
190,    204-206,    209-237,    248-251, 
260.    261,    265-277,    282    et    seq.  ; 
rate  of  exchange  and  home,    194, 
J95»  J99>  200,  235,  236,  287,  288  ; 
and  restriction  of  credit,  199.  200  ; 
and  Free  Trade — see  Labour  and 
Free      Trade;      and      labour — see 


INDEX 


Labour;  and  law  of  supply  and 
demand — see  Law  of  supply  and 
demand  ;  and  middlemen — see 
Middlemen  ;  and  Protection — see 
Protection.  See  also  Cheap  prices 

Principles  of  international  economic 
relationships,  17,  121,  161-254  ;  of 
taxation,  100-102  ;  of  Free  Trade, 
258  et  seq.,  277-298  ;  of  equitable 
distribution — see  Equitable  distri- 
bution of  wealth  ;  of  government 
— see  Government,  science  of 

Private  ownership,  abolition  of — see 
Profits,  nationalization  of 

Produce,  inducement  to,  45,  55,  56, 
63  et  seq.,  95-100,  103-111,  143- 
151,  211 ;  what  a  nation  should, 
278  et  seq.  ;  freedom  to — see  Eco- 
nomic liberty 

Producers  of  wealth,  must  be  re- 
warded, i  (3),  2  (27),  45,  55,  63, 
et  seq.,  95-100,  103-111,  140,  147, 
211,  217,  253,  254,  295,  300  et  seq.  ; 
their  essential  difference  from 
middlemen,  60-72,  117-119,  140, 
160,  186-192,  202,  203,  253,  254, 

294,  295,  300,  306  et  seq.  ;    support 
the    whole  community,  60  et  seq., 
77,  145,  146,  160,  218,  260,  261,  304 
et  seq.  ;     surrender    part   of  their 
produce,  60  et  seq.,  77  et  seq.,  145, 
1 60,  260,  300  et  seq.  \  competition  of, 
62  et  seq. — see  also  Manufacturers  ; 
and  consumers,   62,   77,  145,  146, 
156-160,  218,  260,  261,  300  ;  their 
prices  based  on  cost,  67,  226,  237 ; 
capital  of,   69-72,    127-140  ;  take 
risks,  68,  71  ;  and  cost  of  govern- 
ment, 69,  101,  102,  138,  218,  319  ; 
save    labour,     70  ;     teachers    the 
greatest  of,  70  ;  are  forgotten,  72, 
304  ;   and  co-operation,    144-149  ; 
and    unemployed,    153-158,    227- 
229,   310,   311  ;  and  international 
rate    of    exchange,    194-206,    228, 
229,  320  ;  must  rule,  237,  247-249, 
293-295,  300-308,  318  ;  must  con- 
trol   distribution,    247-249,    293- 

295,  300  et  seq,  ;  and  Bolshevism, 
247-249,  293-295  ;  and  the  '  Inter- 
nationale,'   247-251  ;    increase    in 
number    of,    320  ;    efficiency    of — 
see  Efficiency  ;  and  foreign  trade — 
see  Foreign  trade  ;  profits  of — see 
Profits  ;  their  right  to  a  market — 
see  Foreign  trade  and  the  import- 
ance of  markets ;  skill  of — see  Skill 


Production  of,  necessaries  of  life,  i 
(10),  24  et  seq.,  90  et  seq.,  115-126, 
154-163  ;  luxuries,  2  (15),  2  (16), 
36-41,  54,  55,  68,  79-81,  91-93. 
126  ;  food — see  Food  ;  man-wealth 
— see  Production  of  wealth  ;  na- 
tional wealth — see  Skilled  indus- 
tries and  national  wealth-pro- 
duction ;  natural  wealth  —  see 
Natural  capital 

Production  of  wealth,  i  (2),  1(3),  i  (8), 
i  (9),  i  (ii),  i  (13).  i  (14).  i  (31). 
8,  9,  14,  23-42,  45-47,  57-59,  9o 
et  seq.,  138,  152-163,  174-181, 
186-215,  238-243,  249,  250,  256, 
257,  261  et  seq.,  278  et  seq.,  304, 
316  et  seq.  ;  cost  of,  i  (8),  27,  28, 
49-55,  60-63,  67-70,  88-93,  106- 
iii,  117,  118,  121-126,  143-151, 
159,  160,  173-183,  211,  212,  226- 
229,  237-243,  248-251,  261  et  seq.  ; 
due  to  skill,  i  (n),  32-42,  45 
et  seq.,  60-72,  97  et  seq.,  103- 
126,  132,  152,  176,  177,  208- 
215,  240-242,  249,  250,  256,  257, 
321  ;  nation's  claim  to  its,  2  (27), 
169-185 ;  governed  by  definite 
laws,  15  ;  importance  of,  15,  20, 
21,  56-59,  100-102,  161-178,  203- 
218,  256,  278  et  seq.  ;  and  leisure, 
36  ;  precedes  exchange,  46  et  seq., 
64,  69,  207-215,  225,  261  et  seq.  ', 
and  consumption,  61,  156-160, 
211,  315  et  seq.  ;  romance  of,  67  ; 
precedes  demand,  69 ;  and  in- 
ventors, 96,  117,  176,  177,  210 ; 
unequal,  97,  248,  251,  261  ;  and 
Nature,  in,  122-126,  162-168; 
and  balance  of  exports  over 
imports,  113,  181-185,  280-282, 
290;  and  export  of  capital,  114, 
179-185,  259,  272,  279  et  seq.  ; 
and  law  of  supply  and  demand, 
114,  115,  256,  257,  311  ;  and 
standard  of  living,  140-142,  152- 
158,  160-162,  218,  235,  236,  248, 
251,  274-277,  311,  317  ;  and 
nationalization,  149-151,  218,  248, 
320 ;  and  population,  152-160, 
208-215  ,'  and  liberty,  156-158, 
220-225,  314 ;  interference  with, 
1 68,  1 88,  216-225,  267 ;  and  rate  of 
exchange,  194-206,  228,  229,  244- 
251,  265,  270,  320  ;  and  credit, 
198  ;  census  of,  215,  318  ;  assur- 
ance of  free,  216-225  ;  and  Tariff 
Reformers,  225,  257-259,  270, 

341 


THE  REAL  WEALTH  OF  NATIONS 


289  et  seq.  \  and  transport  workers, 
225,  247-251,  294,  320  ;  and  the 
'  Internationale/  247-251  ;  and 
minimum  wage,  311  ;  and  Bol- 
shevism —  see  Bolshevism  ;  and 
capital — see  Capital ;  and  civiliza- 
tion— see  Work  and  civilization  ; 
and  competition — see  Competition 
and  cost  of  production  ;  and  co- 
operation— see  Co-operation  ;  and 
distribution  —  see  Distribution  ; 
and  education — see  Education  ; 
and  exchange — see  Exchange  ;  and 
Free  Trade — see  Free  Trade  ;  and 
international  trade — see  Foreign 
trade  and  cost  of  production  ;  and 
labour — see  Labour  ;  man's  claim 
to  his — see  Producers  of  wealth 
must  be  rewarded  ;  and  markets 
— see  Market ;  and  middlemen — 
see  Middlemen  ;  and  prices — see 
Prices ;  and  profit — see  Profit ;  and 
Protection  —  see  Protection  ;  and 
strikes — see  Labour  and  strikes  ; 
and  subdivision  of  labour — see  Sub- 
division of  labour  ;  and  taxation — 
see  Taxation  ;  and  value  of  money 
— see  Value  of  money ;  and  wages — 
see  Value  of  money  and  output ;  and 
wealth-wage — see  Wealth-wage 

Production  of  world- wealth,  161-168 

Productive  industries,  and  coal-min- 
ing, 113,  114;  and  capital,  127-140; 
and  wages,  307 

Profit,  on  exchange,  2  (29),  3  (31), 
45-49,  65,  170-181,  193-206,  245- 
247,  254,  265,  280,  281  ;  desire 
for,  7,  107,  150,  153,  154,  2ii, 
254  ;  and  demand,  46-52  \  and 
cost  of  production,  52-55,  69,  80, 
144-149 ;  and  intrinsic  value, 
S2,  53;  =  price  -  cost,  52-55; 
co-operation  for,  143-150  >  com- 
petition for — see  Profits  ;  foreign 
trade  and  national — see  Foreign 
trade  and  -national  well-being ; 
individual — see  Individual  ;  of  one 
nation  at  the  expense  of  another 
— see  Foreign  trade  and  national 
well-being 

Profiteering,  67,  69  ;  and  monopolies, 
143-149,  164-168,  226,  227,  260, 
278 ;  by  nations,  161-168,  177- 
206,  224,  245-252  ;  and  financiers, 
199-202  ;  and  Free  Trade,  224, 
225 ;  and  law  of  supply  and 
demand,  226,  227 

342 


Profits,  of  employers,  45,  128-142, 
187-192,  216,  242,  257  et  seq.  ; 
301  et  seq.  ;  of  labour,  45,  97, 
128-140,  242,  266  ;  of  producers, 
55.  56,  63  et  seq.,  147,  176,  177  : 
of  middlemen,  62-69,  147,  149, 
300  et  seq.,  316 ;  and  cheap 
prices,  63,  145,  204-206,  219-225  ; 
of  bankers,  66,  300  et  seq.  \  and 
taxation,  69,  102,  137,  138,  259, 
304,  319  ;  of  capital,  72,  131-140, 
320  ,  and  skilled  industries,  128- 
140,  216,  223,  242,  257  et  seq.  ; 
and  wages,  128-134,  J42»  242 ,' 
and  competition,  143-150,  214, 
215,  242,  274-277  ;  and  mono- 
polies, 143-149,  I66-T68,  226, 
260,  278 ;  nationalization  of, 
149-151,  218,  248,  320  ;  from  coal, 
150,  320  ;  of  farmers  and  taxation, 
259-261,  319 ;  from  land,  317  ; 
and  efficiency — see  Produce,  in- 
ducement to;  and  foreign  trade 
— see  Foreign  trade  and  national 
well-being  ;  aud  progress — see  Pro- 
duce, inducement  to 

Profit-sharing,  148,  149,  242,  243, 
312,  315,  319,  320 ;  and  mono- 
polies, 148,  149,  312 

Prohibition,  of  imports,  224,  225- 
237,  288 }  avoids  cost  of  cus- 
toms, 232,  288  ;  versus  Protection, 
238 

Proletariat,  rule  by  the,  45,  225, 
293-295,  306,  310-312  ;  claims 
of  the,  104,  249,  250,  293-295  ; 
and  bourgeois,  no,  249;  not 
robbed  of  wealth,  no,  248,  251, 
294  ;  and  distribution  of  wealth, 
149,  150,  293-295,  303  ;  and 
rationalization,  149-151  ;  and  the 
'  Internationale,'  247-251  ;  and 
exploitation  by  the  capitalist, 
248-251  ;  and  Protection  of  skilled 
industries,  248-251  ;  altruism  of, 
293-295  ;  benefits  by  increased 
production  —  see  Production  of 
wealth  and  standard  of  living  ; 
and  Free  Trade — see  Labour  and 
Free  Trade ;  and  international 
competition — see  Foreign  trade  and 
civilization.  See  also  Poor 

Propaganda,  economic,  99,  150,  240, 
257  et  seq.,  295-298,  320,  321 

Protection,  and  skilled  industries, 
207-225,  228-243,  250,  259  et 
seq.,  265-292,  295-298,  308  et  seq., 


INDEX 


319,  321  ;  and  agriculture,  210 
et  seq.,  217  et  seg.t  259,  308  et 
seq.,  319  :  and  the  sanctity  of 
nations,  212,  236;  and  efficiency, 
213,  214,  224,  225,  233,  234,  242, 
268,  299  ;  and  civilization,  224- 

237,  242-251,     269,    308    et    seq., 
319;     and    consumers,    224,    226 
et  seq.,    259-261,   287,    288  ;    real 
advantage  of,  224-237,  288  ei  seq.  ; 
and  unskilled  industries,  224,  225, 
232,    239-243.    261,   265-277,    287, 

290  et   seq.  ;     and    economic   war, 
225,  236,  243,  250,  251,  268,  269, 
277,     319;      and    distribution    of 
wealth,    226-237,    261,    287,   288  ; 
effect  and  real  object  of,  226-238, 
292,  308  et  seq.,    319  ;    and  prices, 
226-237,    282     et    seq.,     295-298 ; 
and    value    of    money,     227-237, 
287,  288,  291,  292,  319  ;    benefits 
both  employers  and  workers.  228- 
230,  261,  274-277,  283  et  seq. ;  and 
cost  of  production,  228-230,  236- 

238.  267,    275-277,    282    et    seq. ; 
cannot  harm  a  nation,  229,  230 ;  can- 
not increase  revenue,  231,  238,  288, 

291  ;    and  labour-hours,    232-236, 
261,    277,    286    et    seq.,   295-298  ; 
objections    to,    233-237,    259-261, 
289    et     seq.  ;      does    not    hinder 
international     co  operation,     234, 
243-251,    319 ;     graded    according 
to  the  national  value  of  industries, 
238-243  ;    versus  prohibition,  238  ; 
and     education,      240,     296-298  ; 
increases    world-wealth,    242-251  ; 
and   profit-sharing,  242,   243,  312, 
315,    319,    320;     and    League    of 
Nations,  243,  251,  269    319  ;    and 
the  'Internationale/  248-251  ;  and 
unemployment,    289  ;      and    com- 
petition   in    neutral    markets — see 
Neutral  ;      and     Free    Trade — see 
Free    Trade ;      and    international 
competition — see    Foreign    trade  ; 
and  national  insurance — see  Exist- 
ence of  nationalities  ;    and  the  re- 
servation of  a  market  for  wealth- 
producers — see  Foreign  trade  and 
importance  of  market? 

Purchasing  power  of,  a  nation 
decided  by  its  own  production, 
207-215  ;  the  world  for  a  nation's 
products,  213-215  ;  money — see 
Value  of  money ;  wages — see  Value 
of  money  and  wages 


QUALITY  of  industries,  111-126,  152- 
160,  308  et  seq.  ;  decides  the 
limit  of  a  nation's  economic  well- 
being,  125,  152-160.  216,  307  ; 
and  international  trade,  176-206, 
223-225,  246-251  ;  and  foreign 
investments,  183-185, 198, 238-243, 
281  ;  and  rate  of  exchange,  196, 
1.97.  203,  204  ;  and  underselling, 
203-206  ;  and  foreign  trade — see 
Foreign  trade  and  skilled  indus- 
tries ;  and  Free  Trade — see  Free 
Trade  and  skilled  industries  ;  and 
law  of  supply  and  demand — see 
Law  of  supply  and  demand  and 
skilled  industries  ;  and  Protection 
— see  Protection  and  skilled  indus- 
tries ;  and  the  size  of  a  nation's 
market — see  Protection  and  skilled 
industries;  and  Tariff  Reformers — 
see  Tariff  Reformers  ;  and  unit  of 
value — see  Unit  of  value 


RAILWAYS,  nationalization  of,  150, 
308,  320 

Rate  of  exchange,  and  depreciation 
in  national  currency,  137,  138, 
201,  202  ;  and  equality  of  labour- 
hours,  193-206 ;  and  real  value 
of  money,  193-206,  229,  317-320  ; 
and  skilled  labour,  193-206  ;  and 
cost  of  living,  194,  195,  199-201, 
235,  236,  287,  288  ;  and  cost  of 
production,  194-206,  228,  229, 
244-251,  255,  270,  320  ;  equitable 
international,  194-206,  265,  270, 
317,  318  ;  variations  in,  194-206, 
244-251,  265-270;  with  U.S.A., 
194-206,  234-236  ;  and  living 
wage,  195-206 ;  and  quality  of 
industries,  196,  197,  203,  204  ; 
and  bankers,  197-200 ;  and  credit, 


197-200 
200-203 
317-320 


and    balance   of    trade, 
control    of,    201,    206, 
and  financiers,  201-206, 


320  ;  and  war,  201,  206  and 
underselling,  203-206  ;  and  mono- 
polies, 204  ;  and  international 
competition  —  see  Foreign  trade 
and  rate  of  exchange 
Rate  of  interest,  72,  130-140,  183, 

i*4 

Raw  material,  irreplaceable,  2  (28), 
34,  113,  114,  121-126;  conserva- 
tion of,  34,  113,  114,  121-126, 
1  80,  1  81  ;  and  national  cost  of 

343 


THE  REAL  WEALTH   OF  NATIONS 


production,  113,  114,  121-126, 
265  ;  and  production  of  luxuries, 
126 ;  nationalization  of,  150, 
151,  218,  248,  308  et  seq.  ;  and 
Protection,  232  ;  control  of,  308 
et  seq.  ;  export  of — see  Export ; 
and  Free  Trade — see  Coal  and 
Free  Trade 

Reafforestation,  124.  158,  314,  319 

Real,  '  Internationale,'  a,  244-254  ; 
beneficiaries  of  Free  Trade,  271-298 

Reconstruction,  299-321 

Re -exporters,  190,  191 

Referendun.,  310 

Re  housing,  313 

Relation  of  wages  to  prices,  88-94, 
202,  227-229,  303  ;  and  Free 
Trade,  257-267,  273-277  283  etseq. 

Religion  and  economics,  252-254 

Rent,  131,  314 

Restriction  of,  number  of  middle- 
men, 60  et  seq.,  72  et  seq.,  106, 
140,  294,  304,  313,  316,  320;  out- 
put by  Trade  Unions,  155,  284,  310, 
319  ;  international  competition, 
187-192,  226-237,  282,  308  et 
seq.,  319  ;  exports,  187-192,  236, 
315,319;  credit,  198-200  buying 
in  the  cheapest  market,  218-225  ; 
number  of  miners,  320  ;  number 
of  transport  workers,  320 

Revenue  and  taxation,  102,  288, 
2Qi  ;  effect  of  Protection  on,  231, 
238,  288,  291  ;  and  tax  on  coal,  30^ 

Reward,  of  leadership  128-134  ; 
equitable — see  Equitable  distri- 
bution ;  of  skill — see  Skill 

Rich,  claim  of  poor  on,  97  et  seq., 
106-111,  137,  138,  246,  305, 
307;  income  tax  and  the,  137, 
138,  246  ;  and  poor  nations, 
164,  165,  210,  222-225,  236  ft  seq., 
251,  269 

Riches,  obtained  through  production, 
54,  300  et  seq.  ;  through  trade,  64, 
300  et  seq.  ;  and  happiness,  152- 
154,  159,  160,  318.  321  ;  obtained 
through  foreign  trade — see  Indi- 
vidual profit  and  foreign  trade 

Rights  of,  superior  men,  107-111, 
247-249,  293-295.  299  et  seq.  ; 
nations  to  their  own  market — 
see  Markets  ;  small  nationalities 
— see  Existence  of  nationalities 

Risks,  producer  takes  most,  68,  71  ; 
employer  must  take,  130 ;  and 
capital,  130-136 

344 


Robbery,  and  laws  of  Economics, 
56,  106,  253,  254  ;  of  producers, 
294,  300  et  seq.  See  also  Force 

Rule  of,  unskilled,  45,  225,  237, 
293-295.  306,  310-312  ;  force— 
see  Force,  rule  of 

Rulers  of  the  State,  237,  247-249, 
293-295.  299-308,  318 


SANCTITY,  of  a  home,  15 ;  of  a 
nation,  15,  20,  212,  236 ;  of 
skilled  industries,  164-168,  241  -> 
243,  291,  312  ;  of  nations,  165- 
168,  212,  236 ;  of  nations  and 
Protection,  212,  236 

Sellers,  and  waste,  157,  158  ;  and 
buyers,  218-225 

Selling  price,  production  depends 
upon,  211.  See  also  Price  and 
cost  of  production 

Semi-skilled,  49 

Services,  45,  60  et  seq.,  173,  178, 
179.  See  also  Exchange 

Shares,  ordinary  and  preference,  etc., 
136 

Shipping  industry,  and  international 
trade,  179;  and  Free  Trade,  259, 
271,  272,  276,  277,  284,  285 

Shortage  of  necessaries,  55,  56,  106, 
154-158,  170,  224-227 

Silver,  money  and  the  use  of,  74 

Single  men,  104-107 

Size  of  a  nation's  market — see 
Market 

Skill,  of  producers  and  middlemen, 
I  (n),  47,  61  et  seq.,  98-100,  300, 
321  ;  man  not  born  with,  24,  32, 
98-100  ;  and  labour-saving,  31  et 
seq.,  98,  240  ;  definition  of,  32, 
97  et  seq.  ;  and  production  of 
necessaries,  32,  97,  115-126,  154- 
160  ;  must  be  rewarded,  32,  3.3, 
95-100,  107-111,  117,  294,  303  et 
seq.  ;  importance  of,  32,  42,  47, 
321  ;  a  relative  term,  33,  49,  98  ; 
and  intrinsic  value,  33,  49,  97^ 
100  ;  of  manual  workers,  41,  42, 
49.  97-100  ;  development  of,  41, 
88  et  seq.,  108,  109  ;  and  sub- 
division of  labour,  42-45  ;  and 
exchange,  46  et  seq.  ;  and  leisure, 
47  ;  and  exchange  value,  49~55> 
115  ;  and  wages,  88-94,  103-126, 
216,  228,  229,  265,  282-284  ;  of 
brain-workers,  97-100  ;  distribu- 
tion according  to.  97-100,  103- 


INDEX 


126,  305  ;  of  organizers,  98-100  ; 
and  education,  98-100,  160,  240  ; 
of  engineers,  99 ;  and  combina- 
tion, 128,  129 ;  and  employers, 
128-140 ;  and  leadership,  128, 
129,  293-295  ;  and  capital,  133- 
140,  183,  184,  198 ;  of  agricul- 
tural labourer,  155  ;  and  Protec- 
tion, 275,  292  ;  and  civilization — 
see  Civilization  and  skilled  indus- 
tries ;  and  hours  of  labour — see 
Labour  and  skilled  industries  ;  and 
international  trade — see  Foreign 
trade  and  skilled  industries  ;  and 
national  wealth  -  production — see 
Skilled  industries  and  national 
wealth-production ;  and  ralue  of 
money — see  Value  of  money  and 
output ;  man-wealth  due  to — see 
Production  of  wealth.  See  also 
Skilled  industries 

Skilled  industries,  and  national 
wealth-production,  106,  111-126, 
133-140,  152-162,  166,  167,  172- 
192,  208-216,  220-225,  237,  256 
et  seq.,  267,  277  et  seq.,  308,  320  ; 
development  of,  in  et  seq.,  152- 
160,  165-168,  224,  225,  239-243, 
267-270,  319-321  ;  and  capital, 
133-140,  183,  184,  198  ;  and 
leisure,  152-154  ;  and  inequality 
of  nations,  164-168  ;  and  foreign 
investments,  183,  184,  198,  238- 
243,  281  ;  and  Japanese  compe- 
tition, 191,  192,  274-277  ;  and 
size  of  a  nation's  market,  208- 
215  ;  and  education,  214,  215, 
240-243,  265-270,  308  et  seq.  ; 
and  Tariff  Reformers,  225,  257- 
259,  270,  289  et  seq.  \  bonusing 
of,  241,  242  ;  and  unemployment, 
242,  289,  311  ;  and  League  of 
Nations,  243,  251,  269,  319  ;  and 
the '  Internationale,'  247-251  ;  and 
cheap  imports — see  International 
competition  ;  and  civilization — 
see  Civilization  ;  and  conditions 
of  living — see  Skilled  industries 
and  national  wealth-production  ; 
and  economic  war — see  Protec- 
tion and  economic  war ;  and 
employers — see  Employers  ;  and 
employers  profit — see  Employers 
of  skilled  labour  ;  and  foreign 
trade — see  Foreign  trade  ;  and 
Free  Trade — see  Free  Trade  ;  and 
labour — see  Labour  ;  and  prices — 


see  Value  of  money  and  output;  and 
profit-sharing — see  Profit-sharing  ; 
and  Protection — see  Protection  ; 
and  value  of  money — see  Value  of 
money  and  output ;  monopoly  of, 
not  permissible — see  Monopoly 

Skilled  labour,  31-41,  45  et  seq.,  97  ; 
can  always  replace  unskilled,  41, 
49,  109 ;  and  distribution  of 
wealth,  97-100,  103-126,  305  ; 
and  foreign  investments,  183/184, 
198,  238-243  ;  and  international 
rate  of  exchange,  193-206  ;  balance 
of  trade  and  products  of,  201  ; 
should  dictate  a  nation's  policy, 
237,  247-249,  293-795,  299  et  se>\.  ; 
and  the'  Internationale,'  247-251  ; 
and  employers  —see  Employers  ; 
and  foreign  trade — see  Foreign 
trade  and  skilled  industries  ;  and 
Free  Trade-  -see  Labour  and  Free 
Trade  ;  exchange  of — see  Ex- 
change of  skilled  for  unskilled 
labour.  See  also  Production  of 
wealth 

Slackness,  and  competition,  145,  146  ; 
not  caused  by  Protection — see 
Protection  and  efficiency 

Slavery,  wage-,  89,  103  ;  economic — 
see  Economic  slavery 

Social  obligations,  97-100,  106-111, 
137,  138,  246,  305,  307  ;  and  the 
law  of  supply  and  demand — see 
Poverty  and  law  of  supply  and 
demand 

Social  reformers  and  Free  Trade,  260 

Socialists  and  private  ownership — 
see  Profits,  nationalization  of 

Source,  of  progress — see  Civilization  ; 
of  wealth — see  Wealth  and,  Produc- 
tion of  wealth 

Stability  of  industries  and  their 
national  value,  240 

Standard  of  living,  and  capital,  134, 
140-142,  152-154,  160,  308  et  seq., 
315-317  ;  and  material  wealth, 
152-168,  220-225  »'  and  balance  of 
exports  over  imports,  182-185  ; 
and  buying  in  the  cheapest  mar- 
ket, 219-225,  250,  251,  268,  269; 
and  efficient  production — see  Pro- 
duction of  wealth  ;  and  foreign 
trade — see  Foreign  trade  and 
civilization  ;  and  Free  Trade — see 
Labour  and  Free  Trade ;  and 
number  of  middlemen — see  Middle- 
men and  prices ;  and  skilled 

345 


THE  REAL  WEALTH  OF  NATIONS 


labour— see  Skilled  industries  and 
national    wealth-production  ;    and 
waste — see  Waste 
State,  strikes  and  the,  139,  140,  310, 

Steel  bars,  production  of,   124 
Stephenson,  George,  115,  259 
Strike  pay,   139,   140,   158,  227-229, 

310 
Strikes,  of  skilled  and  unskilled  men, 

41,  49,    109;    cause  of,   138-140; 
and    civilization,     138-140  ;     and 
employers,     138-140 ;      avoidance 
of,    138-140,    149,    158,    310,   311  ; 
and  civil  war,  139,  140,  310  ;    and 
value    of    money,    139,    140,    158, 
227-229,    3 to,     and    wages,    139, 
140,  158,  227-229,   310  ;    and  the 
State,    139,    140,    310,    311  ;     and 
middlemen,    140 ;    and  producers, 
154-158..  310,  311  ;  and  necessaries 
of     life,     310;      and     labour — see 
Labour 

Subdivision  of  labour,  and  animals, 
42  ;  not  the  real  cause  of  dis- 
content, 42  ;  and  communal  life, 

42,  45  ;    essential  for  development 
of  skill,  42-45  ;    and  the  exchange 
of  wealth,  or  trade,  42-59  ;   allows 
increased    wealth -production,    42- 
60,  88,  89,  117-119,  163,  169-185  ; 
and  civilization,  45  et  seq.  ;  penalty 
of,    62  ;     necessitates    the    use    of 
money,  73  et  seq.,  88,  89,  193  ;   and 
value  of  money,    76  el   seq.,    193 
and  machinery,  88,  89  ;  and  wages 
88,  89  ;    and  employers,    127-132 
and    capital,    127-132  ;     and    co- 
operation, 127-132,  144-149;  inter- 
national,   163,    169-185,    193  ;  and 
reservation  of  a  market,  211  ;  and 
land-tenure,  313,  314 

Superfluities,  and  standard  of  living, 
17  ;  value  of,  263,  264.  See  also 
Over-production 

Superior  men,  2  (24),  5  et  seq.,  16,  17, 
24,  33,  97,  141,  142,  234  ;  com- 
bination of,  ii  ;  and  wealth- 
production,  97,  248-251,  261  ; 
obligations  of,  153,  154,  163,  167, 
1 68,  293-295  ;  and  Bolshevism, 
293-295  ;  and  civilization — see 
Civilization  ;  and  nationalization 
see  Nationalization  ;  rights  of — 
see  Rights  of  superior  men  ;  rule 
by — see  Rulers  of  the  State 

346 


Supply,  precedes  demand,  51  ;  due 
to  skill,  51  ;  of  money,  75  et  seq., 
137.  J38,  201,  202  ;  and  demand — 
see  Law  of  supply  and  demand 

Surplus  of  necessaries,  i  (4),  i  (6),  2 

(15),  2  (16),  13, 24, 28,  38, 154-158  ; 

of  luxuries,  38 

Surplus  production,  exchanged  with 
other  nations,  160 ;  requires  a 
market,  160,  211 

Survival  of  the  fittest,  law  of — see 
Law  of  survival  of  the  fittest 

Sweated  labour,  120  ;  and  living 
wage,  1 20  ;  and  exports,  186,  187, 
191,  242,  265-277  ;  and  Free 
Trade,  242,  266,  271-277 ;  and 
buying  in  the  cheapest  market — 
see  Liberty  ;  and  liberty — see 
Liberty 

Switzerland,  industrial  development 
of,  167,  215,  279 

Syndicalists,  international  competi- 
tion and  the,  248-251 


TARIFF  Reformers  and  the  quality  of 
industries,  225,  257-259,  270,  289 
et  seq.  ;  and  economic  principles, 
270,  279,  290  et  seq. 

Tariffs  and  national  value  of  indus- 
tries, 238-243 

Taxation,  and  production,  69,  101, 
102,  138,  218,  304,  312,  319  ;  and 
source  of  income,  69,  137,  138,  259, 
304,  319  ;  of  middlemen,  69,  138, 
190,  304,  312,  319  ;  of  the  rich,  97, 
106-111,  137,  138,  246,  305-3071 
principles  of ,  100-102  ;  and  educa- 
tion, 100-102,  138  ;  direct  and 
indirect,  100-102,  231  ;  and  gov- 
ernment, 100-102,  137,  138,  164- 
166,  218,  246 ;  object  of,  101  ; 
limit  of,  1 01,  138  ;  and  capital, 
102  ;  and  value  of  money,  102  ; 
and  prices,  102,  138  ;  and  revenue, 
102,  288,  291  ;  and  number  of 
dependents,  105-107  ;  and  single 
men,  107 ;  and  distribution  of 
wealth,  107,  137,  138,  246,  312, 
319  ;  and  import  duties,  232,  288  ; 
and  foreigners,  246  ;  and  farmers, 
259-261,  319  ;  of  coal,  280,  308, 
309  ;  of  employers,  312 

Teachers,  responsibilities  of,  70,  71  ; 
higher  salaries  for,  240,  313,  320,321 

Textile  industry,  241,  242  ;  and 
exports,  241,  242,  259,  284,  285 


INDEX 


Thrift,  and  value  of  money,  83  ;  and 
capital,  130,  131,  137  ;  incentive 
to,  131  ;  and  balance  of  exports 
over  imports,  182 

Trade,  for  profit  does  not  promote 
civilization,  9  ;  and  intercourse,  9, 
141  et  seq.  ;  necessitated  by  sub- 
division of  labour,  42-59  ;  the 
consequence  of  production,  46 
et  seq.,  64,  69,  207-215,  225,  261, 
et  seq.  ;  cannot  increase  total 
value  of  wealth,  51  et  seq.,  60  et  seq., 
249,  255  et  seq.  ;  both  parties  can- 
not be  richer  by,  54  et  seq.,  160, 
261-267 »  causes  transfer  of  wealth, 
60  ;  requires  little  skill,  61  ; 
importance  of,  64  ;  romance  of, 
65  et  seq.  ;  interference  with,  66  ; 
union  restrictions,  155,  284,  310, 
311  ;  volume  of ,  159,  160,  172-185, 
207-215,  258,  271,  272  ;  home  and 
foreign,  172-185,  258  ;  balance  of, 
200-203  '•  origin  and  effect  of  Free, 
255-270  ;  principles  of  Free,  264 
et  seq.  ;  and  national  wealth — see 
Foreign  trade  and  national  well- 
being  ;  and  the  law  of  supply  and 
demand — see  Law  of  supply  and 
demand  and  value  ;  and  waste — 
see  Waste 

Transport  workers,  61,  310  ;  and 
foreign  trade,  179-181,  186-192  ; 
and  production  of  wealth,  225, 
247-251,  294,  320  ;  and  the  '  Inter- 
nationale,' 247-251  ;  reduction  in 
number  of,  320  ;  power  of — see 
Rule  of  unskilled 

Trusts — see  Monopolies 

Truths,  economic,  1-21,  321 


UNDERSELLING,  and  rate  of  exchange, 
203-206  ;  and  quality  of  in- 
dustries, 203-206  ;  cannot  benefit 
both  parties,  203-206  ;  benefits 
the  middlemen,  203-206  ;  benefits 
individuals  and  nations  at  the 
expense  of  others,  203-206  ;  harms 
the  producers,  203-206 ;  and 
national  cost  of  production,  203- 
206,  216-225  '  prohibition  of  inter- 
national, 216-225  >  and  standard  of 
living,  219-225,  250,  251,  268,  269  ; 
and  international  co-operation, 
246;  and  syndicalists,  248-251  ;  and 
population,  250,  251,  268,  269.  See 
also  Buying  in  the  cheapest  market 


Unemployment,  154-158,  242,  289 
et  seq.,  314;  and  producers..  154- 
158,  310,  311  ;  and  restriction  of 
output,  155,  284,  310,  311  ;  and 
liberty,  156-158,  303  ;  and  value 
of  money,  158,  310  ;  prevention 
of,  158,  289,  316 ;  and  foreign 
trade,  187  ;  and  skilled  industries, 
232,  242,  289,  311  ;  and  Pro- 
tection, 289  ;  and  Free  Trade,  289, 
292,  293;  and  fashion,  311  ;  and 
over-production — see  Over-produc- 
tion. See  also  Employment 

Unequal,  distribution,  40,  96,  97,  218, 
306  ;  spending,  97  ;  production,  97, 
248-251,  261  ;  men — see  Superior 
men.  See  also  Inequality 

Unhealthy  trades,  108-114,  308,  310 

Unit  of  value,  i  (7),  31  et  seq.  ;  de- 
finition of,  24-31  ;  necessity  for, 
30  et  seq.  ;  science  depends  upon 
acceptance  of  a,  30,  256,  257  ; 
importance  of,  53  et  seq.,  96.  07, 
224,  225,  250,  256",  257,  262  et  seq.  ; 
and  quality  of  industries,  53  et  seq., 
224,  225,  250,  256,  257,  262  et  seq.  ; 
and  economists,  53  et  seq.,  250,  253 
et  seq.,  262  ei  seq.  ;  and  world- 
cost  of  production,  162,  163  ;  and 
climate,  162,  163 

Unit  of  wealth, 29  ei  seq.,  264  et  seq., 321 

United  States,  competition  with,  177, 
189,  196-206,  246-248  ,  rate  of 
exchange  with,  194-206,  234-236  ; 
cost  of  living  in,  234-236 

Universal,  profit-sharing  depends 
upon  Protection,  242,  243,  312,  315, 
319,  320  ;  eight- hour  day  and 
international  competition,  248- 
251  ;  peace  and  graded  system  of 
Protection — see  Protection  ;  Pro- 
tection, effect  of — see  Protection 

Universal  Free  Trade,  prevents  inter- 
national co-operation,  248-251  ;  and 
the  '  Internationale,'  248-251  ;  and 
the  League  of  Nations,  250,  251, 
268,  269,  277  ;  and  economic 
war,  250,  251,  268,  269,  277  ;  and 
international  competition — see  Free 
Trade  ;  and  national  value  of 
industries — see  Free  Trade  and 
skilled  industries ;  and  standard 
of  living — sze  Free  Trade  ;  denies 
right  of  existence  of  small  nation- 
alities— see  Free  Trade 

Unproductive,  capital,  69-72,  136- 
138;  industries,  119,  120 

347 


THE  REAL  WEALTH  OF  NATIONS 


Unrest  and  economic  ignorance — see 
Discontent 

Unskilled  labour,  31-41,  97,  115- 
126  ;  definition  of,  32,  97  et  seq.  ; 
and  international  rate  of  exchange, 
194-206  ;  and  the  '  Internationale/ 
247-251 ;  and  civilization — see  Civi- 
lization ;  and  employers — see  Em- 
ployers ;  and  foreign  trade — see 
Foreign  trade  ;  and  Free  Trade — 
see  Free  Trade  ;  and  international 
competition — see  Foreign  trade  ; 
and  middlemen — see  Labour  ;  and 
poverty — see  Production  of  wealth 
and  standard  of  living  ;  and  Pro- 
tection— see  Protection  ;  and  strikes 
— see  Strikes  ;  benefits  through 
skilled  labour — see  Value  of  money 
and  output ;  exchange  of — see  Ex- 
change of  skilled  for  unskilled 
labour  ;  produces  no  wealth — see 
Labour  and  wealth  -  production  ; 
wages  of — see  Wages  of  skilled  and 
unskilled 

Unskilled  men,  definition  of,  32,  97 
et  seq.  ;  altruism  of,  293-295  ;  rule 
by — see  Rule  of  unskilled 

Use"  of  wealth,  13,  30,  31,  39,  40 

Utility,  3°.  3i»  37-4I.  46,  263,  264  ; 
definition  of,  30  ;  and  exchange, 
46  et  seq.,  262  et  seq. 


VALUE,  and  cost  of  production, 
27  et  seq.,  49,  52,  53,  58,  124, 
162,  163,  262  et  seq.  ;  not  due 
to  demand,  37-41,  51-58,  225, 

255,  262     et     seq.  ;     '  necessary/ 
40,   321  ;    law  of,   139,   140,   145- 
149,    227,    250,    308,    309;     and 
law     of     supply     and     demand — 
see  Law  of  supply  and  demand  ; 
and  output — see  Value  of  money 
and  output  ;   and  price — see  Price  ; 
'  demand  ' — see     Demand     value  ; 
'  exchange  ' — see  Exchange  value ; 
'  intrinsic  ' — see    Intrinsic    value  ; 
'  luxury  ' — see  Value  of  luxuries ; 
not      governed      by      labour — see 
Labour    and     wealth-production  ; 
per     worker     and     exports  —  see 
Foreign   trade   and   labour-hours ; 
unit  of — see  Unit  of  value 

Value  of,  necessaries,  2  (6),  28 
et  seq.,  37  et  seq.,  53  et  seq.,  255, 

256,  262  et  seq.,  317  ;    food,  28  et 
seq.t  263,  264  ;  a  labour-saving  de- 


vice, 31  et  seq.,  98,  240  ;  potatoes, 
32  et  seq.,  46  et  seq.,  264  ;  pleasure, 
36-41,  53-57,  262  et  seq.  ;  pearls, 
38,  54,  263,  264  ;  coal,  114, 
122-126 ;  employers,  128-140 ; 
capitalists,  133-140 ;  the  best 
things  in  life,  153,  154  ;  com- 
modities, 261  et  seq.  ;  goods  to  a 
nation,  262  et  seq.  ;  superfluities, 
263,  264  ;  nutriment,  264  ;  agri- 
cultural industry — see  Agricultural 
industry  ;  industries,  national — 
see  National  value  of  industries  ; 
irreplaceable  raw  material — see 
Raw  material  ;  men's  work — 
see  Production  of  wealth  due  to 
skill  ;  skill  and  brains — see  Pro- 
duction of  wealth  due  to  skill  ; 
wages — see  Value  of  money  and 
wages  ;  wealth  to  man — see  Wealth 

Value  of  luxuries,  2  (17),  36-41, 
53-57.  154.  255.  256,  262  et  seq., 
321  ;  depends  upon  opinion,  or 
demand,  2  (17),  37-41,  53-55. 
171-174,  262  et  seq.  ;  relative  to 
that  of  necessaries,  37,  53  ;  and 
covetousness,  154,  254 

Value  of  money,  73-93,  137,  138. 
194-206,  218-227  ;  and  wealth, 
73-93  ;  and  efficiency,  75  et  seq., 
89-93,  *55  '•  an<3  amount  of 
currency  issued,  75  et  seq.,  137, 
138,  201,  202  ;  and  output,  75 
et  seq.,  89-94,  IOO>  IOI»  II7>  I4I» 
142,  155,  173,  193-206,  227-229, 
265,  279  et  seq.,  307,  311  ;  and  pro- 
duction of  necessaries,  75  et  seq., 
194-206,  319  ;  and  agriculture, 
75  et  seq.,  194-206,  319 ;  and 
subdivision  of  labour,  76  et  seq., 
193  ;  and  middlemen,  76  et  seq., 
85,  92,  286,  302  ;  and  leisure, 
77  et  seq.  ;  and  luxuries,  79 
et  seq.  ',  and  waste,  79  et  seq., 
157  ;  and  cost  of  production, 
79  et  seq.,  193,  204,  228,  229, 
262  et  seq.  ;  and  thrift,  83  ;  war, 
effect  on,  83  et  seq.  ;  and  wages, 
88-94,  107-111,  117,  141,  142, 
155,  202,  216,  227-229,  265,  279 
et  seq.,  288,  303,  307,  311  ;  and 
taxation,  102  ;  and  conscription, 
127-138  ;  and  strikes,  139,  140, 
158,  227-229,  310  ;  and  un- 
employment, 158,  310  ;  inter- 
national, 193-206 ;  and  rate  of 
exchange,  193-206,  229,  317-320; 


348 


INDEX 


and  buying  in  the  cheapest 
market,  218-225  ;  and  Protection, 
227-237,  287  et  seq.,  319  ;  and 
Free  Trade,  235,  236,  257  et  seq., 
273-277,  283  et  seq.  ;  and  cheap 
imports — see  Prices  and  cheap 
imports  ;  and  co-operation — see 
Co-operation ;  and  distribution  of 
wealth — see  Distribution  ;  and  for- 
eign trade — see  Foreign  trade  ;  and 
labour — see  Labour  ;  and  shortage 
of  necessaries — see  Shortage  ;  and 
skill — see  Value  of  money  and 
output ;  for  the  purchase  of  neces- 
saries— see  Necessaries  of  life, 
price  of 

Variable  rate  of  exchange,  194- 
206 ;  benefits  middlemen,  201- 
206  ;  increases  international  com- 
petition, 203-206  ;  causes  under- 
selling, 203-216 

Variation  in  terms  of  credit,  198- 
200 

Vested  interests,  151,  308,  314,  320 

Victorian  economists  and  Bolshevism, 
225 

Volume  of  trade — see  Trade 


WAGE,  -slavery,  89,  103  ;  production 
and  a  minimum,  311  ;  living — see 
Living  wage 

Wage-earners,  number  of,  89,  90  ; 
relations  between,  93,  94.  See  also 
Labour 

Wages,  and  discontent,  45,  103,  132  ; 
introduction  of,  88-90  ;  necessity 
for,  88-94  '•  and  prices,  88-94,  T15» 
141,  142,  202,  227-229,  285,  303  ; 
and  production,  88-94,  107-111, 
117,  141,  142,  155,  216,  227-229, 
265,  279  et  seq.,  288,  303,  307,  311 ; 
and  subdivision  of  labour,  88,  89  : 
effect  of  high,  92,  93,  227-237  ;  and 
middlemen,  92,  140,  302,  307,  319  ; 
equitable,  95-97,  103-111,  128,  132, 
133,  144,  149,  309  et  seq.  ;  of 
skilled  and  unskilled,  97-100,  103- 
126,  133-136,  195,  206,  210,  309 
et  seq.  ;  distribution  by,  103-126, 
218,  223,  228,  229,  307  et  seq.  ;  of 
dependents,  104-107  ;  of  married 
men,  104-107  ;  of  single  men, 
104-107  ;  of  men  and  women,  106, 
107  ;  work  and,  106-111,  127-129  ; 
and  'dirty*  money,  108-111, 
308-310 ;  in  unpleasant  trades. 


108-111,  113,  114,  308-310;  of 
miners..  108,  109,  113,  114,  308-310; 
and  sweating,  120  ;  and  profits, 
128-134,  142,  242  ;  and  interest, 
130-140 ;  and  com  petit' on.  141-144, 
149,  204,  205,  272,  277  ;  and  inter 
national  rate  of  exchange,  194-206 ; 
and  Protection  of  skilled  industries, 
227-237,  239-243,  261,  279  et  seq., 

.  283  et  seq.  ;  and  costs — see  Cost  of 
production  ;  and  employers — see 
Employers  ;  and  foreign  trade — see 
Foreign  trade  ;  and  Free  trade — 
see  Labour  and  Free  Trade  ;  and 
labour — see  Labour  ;  and  law  of 
supply  and  demand — see  Law  of 
supply  and  demand ;  and  Liberty 
— see  Law  of  supply  and  demand 
and  wages ;  and  national  cost  of 
production — see  Value  of  money 
and  output;  and  national  value  of 
industries — see  Skill  and  wages  ; 
and  output — see  Value  of  money 
and  output ;  of  producers  and  non- 
producers — see  Producers  of  wealth 
and  middlemen  ;  and  shortage  of 
necessaries — see  Shortage  of  ;  and 
Skill — see  Skill  and  wages  ;  and 
strikes — see  Strikes  ;  and  universal 
Free  Trade — see  Labour  and  Free 
Trade ;  and  value  of  money — see 
Value  of  money 

War,  and  value  of  money,  83  et  seq.  ; 
and  the  law  of  supply  and  demand, 
84,  170;  industrial,  93,  138-140, 
145-149,  154-158,  308  et  seq.  ', 
class-,  100,  138,  140,  249-251,  303 
et  seq.  ;  strikes  and  civil,  139,  140; 
and  competition,  145-148  —  see 
also  Foreign  trade  and  war  ;  and 
international  competition,  188- 
192  ;  and  rate  of  exchange,  201- 
206 ;  and  financiers,  202  ;  economic, 
243,  250,  251,  268,  269,  277,  319; 
and  over-population,  252  ;  and 
international  trade — see  Foreign 
trade;  and  necessaries  of  life — see 
Necessaries  of  life,  importance 
of  ;  Protection  and  economic — see 
Protection 

Waste,  harms  the  community,  2  (22), 
63,  154-158,  248-251  ;  benefits 
individuals,  2  (22),  63,  156-158  ; 
of  commodities,  51,  86,  157, 
3I5~3I7  >  and  middlemen,  69,  157, 
158,  320 ;  and  value  of  money, 
79  et  seq.,  157 ;  of  money,  79 

349 


THE  REAL  WEALTH   OF  NATIONS 


et  seq.,  157,  315  ;  and  standard  ol 
living,  83,  156-158,  248-251,  315 
et  seq.  \  of  raw  material,  113,  114, 
121-126.  180,  181  ;  and  labour- 
hours,  154-158,  20 1,  206,  248-251, 
315  et  seq.  ;  and  employment,  156- 
158,  242,  289  et  seq.,  315  et-  seq.  ; 
and  leisure,  156-158,  248,  315 
et  seq.  ;  and  demand,  157,  158  ; 
and  buyers,  157,  158  ;  and  sellers, 
157,  158  ;  of  luxuries,  157,  315  ; 
of  necessaries,  157,  315  et  seq.  ; 
and  women,  316  ;  and  competition 
— see  Competition  ;  and  law  of 
supply  and  demand — see  Law  of 
supply  and  demand  and  value 

Water  power,  113 

Watt,  James,  7,  33,  34,  259 

Wealth,  i  (2),  i  (3),  i  (4),  i  (n),  12- 
15  ;  availability  of,  i  (2),  13,  95, 
100,  101,  315  et  seq.  ;  first  form  of, 
i  (4),  i  (15),  13,  24,  28,  36,  77; 
value  of,  i  (6),  i  (7),  28  et  seq., 
264  et  seq. ;  not  producible  by 
animals,  7  ;  acquisition  of,  7-9, 
147  et  seq.t  162,  186-192,  209-215, 
254 ;  material,  8,  16,  152-168  ; 
definition  of,  12-21  ;  individual, 
12,  17,  173-181,  186-192  ;  and 
well-being,  12,  13,  20,  152-168, 
220-225 ;  potential,  13,  14,  34, 
57  ;  use  of,  13,  30,  31,  39,  40  ; 
unit  of,  29  et  seq.,  264  et  seq.,  321  ; 
must  not  be  obtained  at  the 
expense  of  human  lives,  37  ;  not 
producible  by  demand,  37-41, 
51-58,  225,  255,  262  et  seq.  ; 
'  joy,'  40,  53,  321  ;  '  economic,' 
40,  57,  321  ;  not  producible  by 
trade,  51  et  seq.,  60  et  seq.,  249, 
255  et  seq.  ;  and  money,  73- 
93  ;  increment,  124-126 ;  and 
population,  152-160,  320,  321  ; 
and  happiness,  153,  154,  159,  160, 
318,  321  ;  accumulated  abroad, 
183-185,  198,  238-243,  281  ;  free 
production  of,  216-225,  308  et  seq.  ; 
internationalization  of,  218  ;  and 
leisure — see  Leisure  ;  and  skill — 
see  Production  of  wealth ;  dis- 
tribution —  see  Distribution  of 
wealth  ;  exchange — see  Exchange 
of  wealth ;  measurement  of 
— see  Measurement  of  wealth ; 
not  producible  by  labour — see 
Labour  and  wealth-production  ; 
of  a  nation — see  National  well- 

35° 


being  ;  of  England — see  Britain  ; 
of  man — see  Man-wealth  ;  of 
nations — see  National  well-being  ; 
producers  and  handlers  of — see 
Producers  of  wealth  ;  producers' 
claim  to  —  see  Production  of 
wealth,  man's  claim  to.  See  also 
Foreign  Trade  and  Trade 

Wealth-handlers — see  Middlemen 

Wealth-production — see  Production 
of  wealth 

Wealth-wage,  90-93,  107-111,  125, 
132-140,  216,  227-229,  309  et  seq.  ; 
and  dependents,  107  ;  and  civi- 
lization, 1 08  ;  and  interest,  130- 
140  ;  and  foreign  trade — see  For- 
eign trade  and  wages  ;  and  inter- 
national competition — see  Foreign 
trade  and  wages  ;  and  national 
wealth — see  Skilled  industries  and 
national  wealth-production 

Well-being,  12,  13,  20  ;  of  the  world 
and  the  '  Internationale,'  247-251  ; 
and  skilled  industries — see  Skilled 
industries  and  national  wealth- 
production  ;  of  a  nation — see 
National  well-being 

Wheat,  coal  exchange  for,  179-181, 
259,  284 

Wills,  analysis  of,  300  et  seq. 

Women,  wages  of,  106,  107  ;  and 
waste,  316  ;  and  fashion,  316 

Wood,  use  of,  124 

Work,  and  civilization,  i  (9),  7,  8, 
16,  19,  24,  33,  44,  97.  l62»  254  '• 
inducement  to,  24,  99,  100  ;  equal 
pay  for  equal,  106-111  ;  and 
wages,  106-111,  127-129;  un- 
pleasant, 108-114,  308-310 

Workers — see  Labour 

Working  day — see  Labour-hours 

World,  its  division  into  nations,  18  ; 
its  cost  of  production  of  necessaries, 
162,  163  ;  well-being  of,  247-251  ; 
controlled  by  middle  men,  300  et  seq. 

World-wealth,  16,  17,  18,  161-168  ; 
production  of,  161-168,  177,  178, 
261-269  ;  and  international  trade, 
172-181,  242-251  ;  and  inter- 
national co-operation,  192-206, 
242-251,  265-270  ;  and  rate  of 
exchange,  201-206 ;  and  Protec- 
tion, 242-251  ;  distribution  of — 
see  Distribution 

World's  markets,  207-215  ;  and 
wages — see  Foreign  trade  and 
wages 


The  First  Four  Volumes  of 

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GOVERNMENT  HANDBOOKS 
Edited  by  DAVID  P.  BARROWS  AND  THOMAS  H.  REED 

GOVERNMENT  AND  POLITICS 
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By  ROBERT  C.  BROOKS 
Professor  of  Political  Science,  Swarthmore  College 

THIS  is  the  second  volume  of  the  Government  Handbooks. 
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It  compares  in  every  vital  point  the  structure  and  working  of 
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GOVERNMENT  HANDBOOKS 
Edited  by  DAVID  P.  BARROWS  AND  THOMAS  H.  REED 

EVOLUTION  OF  THE     1 
DOMINION  OF  CANADA  l 

By  EDWARD  PORRITT 

THIS  is  the  third  volume  of  the  Government  Handbooks, 
and  is  a  book  of  special  timeliness. 

The  war  has  given  Canada  the  status  of  a  nation  and  at 
the  same  time  has  brought  Canada  and  the  United  States 
into  closer  economic  relations  and  sympathetic  community  of 
interest.  As  both  countries  are  democracies  and  have  in- 
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FORM  AND  FUNCTIONS  OF 
AMERICAN  GOVERNMENT 

By  THOMAS  HARRISON  REED 

THE  outgrowth  of  nine  years'  experience  in  teaching 
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1.  Explanation  of  the  election  machinery  of  political  parties. 

2.  Need  of  political  parties. 

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4.  Commission  form  of  government. 

5.  Crime  and  its  prevention. 

6.  National  defense. 

7.  Conservation  of  natural  resources. 

8.  Care  of  dependents. 

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10.  Preservation  of  public  health. 

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The  first  book  on  reconstruction 
Published  November  1918 

DEMOCRACY    AND 
WORLD    RELATIONS 

By  DAVID  STARR  JORDAN 

1.  It  aims  to  show  that  self-government  is  essential   to 
freedom,  order,  and  justice,  and  that  the  permanence 
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Studies  in  Methods  of  Teaching  in  the  College 

COLLEGE     TEACHING 

Edited  by  PAUL  KLAPPER 

'"PHE  introduction  to  this  first  book  on  this  subject  is  the 
work  of  President  Nicholas  Murray  Butler  of  Columbia 
University.  Thirty-one  leading  American  authorities  are 
the  authors  of  the  chapters  which  deal  with  every  subject  in 
the  college  curriculum.  These  were  written  on  the  same  plan, 
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THE  INTRODUCTORY  STUDIES 

THE  SCIENCES 

THE  SOCIAL  SCIENCES 

THE  LANGUAGES  AND  LITERATURES 

THE  ARTS 
VOCATIONAL  SUBJECTS 

A  treasure  of  wisdom  is  stored  in  the  colleges  of  America.  The 
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A  curriculum  in  tune  'with  modern  life 

CHILD    LIFE   AND    THE 
CURRICULUM 

By  JUNIUS  L.  MERIAM 

Professor  »/  School  Supervision  and  Superintendent   of  th»    Unlvtrsitj  School^ 
University  of  Missouri 

The  traditional  curriculum  is  tottering  and  crumbling.  The  demand 
is  for  less  formality  and  more  vitality  in  education.  Public  schools 
must  give  more  attention  to  current  problems  in  home,  community, 
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Especially  designed  for  use  in  high  schools 
(Also  usable  as  low  as  Grade  6  and  as  high  as  first  year  in  college) 

TERMAN  GROUP  TEST  of 
MENTAL  ABILITY 

By  LEWIS  M.  TERMAN 

Professor  of  Educational  Psychology,  Stanford  University;  joint  author 

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